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Borrowing in Unsettled Times and Cash Holdings Afterwards

Author

Listed:
  • Masanori Orihara

    (University of Tsukuba)

  • Yoshiaki Ogura

    (Waseda University)

  • Yue Cai

    (Gakushuin University)

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.

Suggested Citation

  • Masanori Orihara & Yoshiaki Ogura & Yue Cai, 2022. "Borrowing in Unsettled Times and Cash Holdings Afterwards," Working Papers 2207, Waseda University, Faculty of Political Science and Economics.
    • Handle: RePEc:wap:wpaper:2207
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial Crisis; Cash Holdings; Relationship Banking; Hold-up Problem; Bank Consolidation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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