Distance produces the fear of loss: Customer geographic proximity and corporate cash holdings

Li Wang, Yiqi Wu, Yaxin Chen and Yunhao Dai

International Review of Financial Analysis, 2023, vol. 87, issue C

Abstract: Suppliers usually worry about losing important customers far away. This study examines the effect of long-distance customers on the supplier's cash holdings in China. We find that firms with long-distance major customers tend to hold more cash holdings, and the exogenous opening of the high-speed rail can reduce the effects of distant customers. Our results still hold when considering the endogeneity concerns. The cross-sectional tests suggest that the impact of long-distance customers is more pronounced for firms that have fewer accounts receivables and a larger customer concentration. Furthermore, we document that suppliers with a long-distance supply chain relationship hold more cash mainly due to the precautionary motive. Overall, we highlight that the distance between suppliers and customers is an important factor that affects a firm's cash holdings policy, and we also provide some suggestions for both suppliers and policymakers.

Keywords: Customer-supplier relationships; Geographic proximity; Cash holdings; China (search for similar items in EconPapers)
JEL-codes: G31 G32 L14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:87:y:2023:i:c:s1057521923000881

DOI: 10.1016/j.irfa.2023.102572

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