The Cash-holding Link within the Supply Chain
Review of Quantitative Finance and Accounting
47 Pages Posted: 10 Apr 2020 Last revised: 5 Feb 2021
Date Written: February 4, 2021
Using a customer-supplier matched sample of US-listed firms from 1980 to 2016, we study the corporate cash-holding relationship between suppliers and their major customers. The key findings suggest that the cash-holding levels of suppliers are positively affected by those of their major customers, consistent with the liquidity argument. The effects are more pronounced when the major customers are in more favourable financial conditions and when they are considered more important to their suppliers. Our results are robust to various endogeneity problems and additional tests. Taken together, these results bring forth an important corporate cash-holding link within the supply chain.
Keywords: Cash holdings, Supplier-customer relationships, Supply chain
JEL Classification: G30, G31, G32, L14
Suggested Citation: Suggested Citation