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Bank health and cash holdings: Evidence from a bank-centered financial market

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  • Sasaki, Toshinori
  • Suzuki, Katsushi

Abstract

We examine how bank health affects firms' cash holdings in Japan, a bank-centered market. We find that the deterioration of bank health leads firms to save more cash from their cash flows. The deterioration of bank health decreases bank-dependent firm investment, and the cash holdings of bank-dependent firms mitigate underinvestment problems. These effects are statistically and economically significant. These results, which are consistent with the financial constraint hypothesis and are inconsistent with the bank power hypothesis, imply that bank health renders firms financially constrained and affects firms' cash holdings and investments in a bank-centered market.

Suggested Citation

  • Sasaki, Toshinori & Suzuki, Katsushi, 2019. "Bank health and cash holdings: Evidence from a bank-centered financial market," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x18304335
    DOI: 10.1016/j.pacfin.2019.101195
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    More about this item

    Keywords

    Cash holdings; Bank soundness; Cash-flow sensitivity of cash; Financial constraint; Bank power;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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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