The implications of faster lending: Loan processing time and corporate cash holdings

Vesa Pursiainen, Hanwen Sun, Qiong Wang and Guochao Yang

No 14/2025, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: A unique natural experiment in China - the city-level staggered introduction of administrative approval centers (AAC) - reduces bank loan processing times by substantially speeding up the process of registering collateral without affecting credit decisions. Following the establishment of an AAC, firms significantly reduce their cash holdings. State-owned enterprises are less affected. Cash flow sensitivity of cash holdings decreases, as does the cash flow sensitivity of investment. The share of short-term debt increases, while inventory holdings and reliance on trade credit decrease. Defaults also decrease. These results suggest that timely access to credit has important implications for firms' financial management.

Keywords: banking; efficiency; precautionary cash holdings; capital management; corporate loans (search for similar items in EconPapers)
JEL-codes: D25 G21 G28 G32 (search for similar items in EconPapers)
Date: 2025
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