Abstract
This paper tests whether creditors affect a firm’s cash reserves and the value of cash via covenants and violations of bank loan contracts. Our results show that tight covenants induce firms to increase their cash balances. Borrowers tend to increase cash reserves after covenant violations by liquidating net working capital and reducing the payout ratio. We also find that covenant violations impact high growth firms, because they are more sensitive to changes in cash reserves. Finally, our results show that the effects of bank monitoring on a firm’s cash holdings are more significant during the financial crisis period. Key words: Bank loan, cash holdings, covenant violation, value of cash
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
