Do Relationships Have Limits? Banking Relationships, Financial Constraints, and Investment

Joel F Houston and Christopher James

The Journal of Business, 2001, vol. 74, issue 3, 347-74

Abstract: Using detailed information on the debt structure of 250 publicly traded U.S. firms over the 1980-93 period, we find that the sensitivity of investment to internally generated funds increases with a firm's reliance on bank financing. Bank-dependent firms also hold larger stocks of liquid assets and have lower dividend payout rates. However, the greater cash sensitivity of investment for bank-dependent firms arises only for the largest capital expenditures (relative to assets). For most levels of investment spending, bank-dependent firms appear to be slightly less cash-flow-constrained than firms with access to public debt markets. Copyright 2001 by University of Chicago Press.

Date: 2001
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