Bank risk-taking and corporate investment: Evidence from the Global Financial Crisis of 2007–2009

Meg Adachi-Sato and Chaiporn Vithessonthi ()

Global Finance Journal, 2021, vol. 49, issue C

Abstract: In this paper, we explore the relation between the banking sector's risk-taking and a firm's investment (“corporate investment”). Specifically, we ask whether firms' cash holdings moderate the effect of the banking sector's risk-taking on corporate investment. Based on a panel sample of publicly listed non-financial firms in 15 EU countries during the period 1990–2015, we document several key findings. First, both cash holdings and the banking sector's risk-taking are positively associated with corporate investment. Second, bank loan growth, which roughly captures the supply of bank credit, is not related to corporate investment. Third, firms with smaller cash holdings disproportionately invest more than do firms with larger cash holdings during periods of higher risk-taking by the banking sector.

Keywords: Bank risk-taking; Cash holding; Corporate investment; EU (search for similar items in EconPapers)
JEL-codes: E44 G21 G31 G32 (search for similar items in EconPapers)
Date: 2021
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:glofin:v:49:y:2021:i:c:s1044028320302738

DOI: 10.1016/j.gfj.2020.100573

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