Abstract
This paper examines the effect of bank-appointed directors on corporate cash holdings for Indian firms. We build on, and extend, the role of bank-appointed directors as a better monitor to mitigate agency problems, thereby alleviating the financial constraints of the firm. Our results indicate that firms with bank-appointed directors hold less cash compared to firms without bank-appointed directors. Nevertheless, we find greater reduction in cash holdings, because of bank-appointed directors, in firms that are not dependent on bank financing. We show that the above relationship is driven by bankers' ability to alleviate the financial constraints of the firm by improving access to bank and non-banking financial institution loans. We next document that these benefits of a banker's presence on a corporate board are true only for standalone firms, not for firms affiliated with business groups.
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