Cash Holdings and Relationship Lending

62 Pages Posted: 28 May 2021 Last revised: 22 Sep 2021

See all articles by Sandeep Dahiya

Sandeep Dahiya

Georgetown University - Department of Finance

Issam Hallak

Joint Research Center of the European Commission; KU Leuven - Faculty of Business and Economics (FEB)

Thomas Matthys

University of Technology Sydney

Date Written: September 22, 2021

Abstract

We examine the effect of relationship lending on a firm's cash-holding levels. Relationship lending allows lenders to generate private information about borrowers which mitigates their financial constraints. We find that cash-holding levels for firms with a relationship lender are significantly lower compared to non-relationship borrowers. Within the group of firms with established lending relationships, it is the firms with high precautionary cash needs that benefit from these relationships. Such firms hold significantly less cash compared to relationship borrowers with low precautionary cash needs. We report that relationship lending is not associated with the market value of firms' cash holdings.

Keywords: Cash holdings, Relationship Lending, Financial Constraints, Capital Structure

JEL Classification: G30, G31, G32

Suggested Citation

Dahiya, Sandeep and Hallak, Issam and Matthys, Thomas, Cash Holdings and Relationship Lending (September 22, 2021). Georgetown McDonough School of Business Research Paper No. 3854899, Available at SSRN: https://ssrn.com/abstract=3854899 or http://dx.doi.org/10.2139/ssrn.3854899

Sandeep Dahiya

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-3832 (Phone)

Issam Hallak

Joint Research Center of the European Commission ( email )

Via E. Fermi 2749
1049
Belgium

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Thomas Matthys (Contact Author)

University of Technology Sydney ( email )

123 Broadway
Sydney, 2000
Australia

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