Bank Relationships and Cash Holdings: Evidence from Emerging Firms in Japan

Abstract

This study investigates how firm-bank relationships affect corporate cash holdings behavior. Using bank relationships and financial statement data for emerging firms in Japan, we find that firms with a concentrated bank loan structure and with long-term main bank relationships hold more cash and show a higher propensity to save cash than those with competitive bank relationships. The effect of bank relationships on cash holdings is not evident for firms with a lower intangible assets ratio and is weakened in those with access to bond markets. Our findings suggest that heterogeneous firm-bank relationships and informational asymmetries are important determinants of corporate cash holdings.