Borrowing in Unsettled Times and Cash Holdings Afterwards

77 Pages Posted: 7 Sep 2019 Last revised: 14 Nov 2022

See all articles by Masanori Orihara

Masanori Orihara

University of Tsukuba

Yoshiaki Ogura

Waseda University, Faculty of Political Science and Economics

Yue Cai

Waseda University - Graduate School of Economics

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Date Written: November 12, 2022

Abstract

We find firms which successfully obtained a bank loan in a crisis reduced their cash holdings post-crisis, using Japanese data from the 2008 financial crisis. Firms received loans primarily from non-main banks. This substitution between borrowing and cash holdings applies to firms with an executive who had served as a CEO or financial officer in the crisis. This resulted in a substantial reduction in borrowing costs after the crisis. These findings are consistent with theories of relationship banking that managerial confidence in the availability of non-main bank loans reduces their precautionary cash holdings both to address a liquidity shortage and to mitigate a hold-up by their main bank. We also find that, in the post-crisis period, firms that obtained bank loans during the crisis spent more (over time and in comparison to other firms) on equity investments in their affiliates as well as on R&D among firms with pre-crisis R&D expenses.

Keywords: Financial Crisis; Cash Holdings; Relationship Banking; Hold-up Problem; Bank Consolidation

JEL Classification: G21, G31, G32

Suggested Citation

Orihara, Masanori and Ogura, Yoshiaki and Cai, Yue, Borrowing in Unsettled Times and Cash Holdings Afterwards (November 12, 2022). Available at SSRN: https://ssrn.com/abstract=3447083 or http://dx.doi.org/10.2139/ssrn.3447083

Yoshiaki Ogura

Waseda University, Faculty of Political Science and Economics ( email )

1-6-1 Nishi-waseda, Shinjuku-ku
Tokyo
Japan

Yue Cai

Waseda University - Graduate School of Economics ( email )

1-6-1 Nishi-waseda, Shinjuku-ku
Tokyo
Japan

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