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Business cycle and cash holdings: Empirical evidence from microfinance institutions

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  • Tchakoute Tchuigoua, Hubert
  • Simo, Christelle
  • Durrieu, François

Abstract

This study aims to determine whether the cash holdings of financial organizations with a social mission respond to the business cycle. Applying a matching approach to an international sample of 8,271 MFI-year observations over the period 2003–2018, we find that liquidity in financial organizations with a social mission is countercyclical (negative co-movement). Our results also suggest that profit-oriented institutions exhibit countercyclical cash holding behavior. Finally, we observe that this countercyclical effect depends both on the quality of assets held by MFIs and their ability to target borrowers with a greater ability to repay loans during bad times.

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  • Tchakoute Tchuigoua, Hubert & Simo, Christelle & Durrieu, François, 2022. "Business cycle and cash holdings: Empirical evidence from microfinance institutions," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004305
    DOI: 10.1016/j.frl.2022.103228
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    1. Hessou, Hélyoth T.S. & Lensink, Robert & Soumaré, Issouf & Tchakoute Tchuigoua, Hubert, 2021. "Provisioning over the business cycle: Some insights from the microfinance industry," International Review of Financial Analysis, Elsevier, vol. 77(C).
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    6. Tchakoute Tchuigoua, Hubert & Soumaré, Issouf & Hessou, Hélyoth T.S., 2020. "Lending and business cycle: Evidence from microfinance institutions," Journal of Business Research, Elsevier, vol. 119(C), pages 1-12.
    7. Wagner, Charlotte & Winkler, Adalbert, 2013. "The Vulnerability of Microfinance to Financial Turmoil – Evidence from the Global Financial Crisis," World Development, Elsevier, vol. 51(C), pages 71-90.
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    11. Soumaré, Issouf & Tchakoute Tchuigoua, Hubert & Hessou, Hélyoth T.S., 2020. "Are microfinance institutions resilient to economic slowdown? Evidence from their capital ratio adjustment over the business cycle," Economic Modelling, Elsevier, vol. 92(C), pages 1-22.
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    2. Fasano, Francesco & Javier Sánchez-Vidal, F. & La Rocca, Maurizio, 2022. "The role of government policies for Italian firms during the COVID-19 crisis," Finance Research Letters, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    Business cycle; Microfinance; Liquidity; Developing economies;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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