Bankruptcy experiences and cash holding behaviors: Case of Japan

Po-Lin Chen

Pacific-Basin Finance Journal, 2024, vol. 88, issue C

Abstract: Using data on Japanese listed firms, we find that companies are more likely to take risks when one or more of their directors experience corporate bankruptcy at another firm when serving concurrently as a director. Consequently, these companies reduce their cash reserves by issuing less equity. This tendency to take greater risk is concentrated in firms that are in a more favorable financial condition or where the interlocked bankruptcy firm has been through less costly bankruptcy. Our findings suggest that past experiences significantly shape individual preferences for taking risk, even if these experiences occur during their professional careers. Further, the effects of bankruptcy experiences on Japanese directors, who are usually considered risk averse, exhibit shifts in risk taking like that found in the US.

Keywords: Director experience; Cash holding; Corporate bankruptcy (search for similar items in EconPapers)
JEL-codes: G32 G33 G34 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:88:y:2024:i:c:s0927538x24002713

DOI: 10.1016/j.pacfin.2024.102519

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