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What do Cash Holdings Tell us About Bank-Firm Relationships? A Case Study of Japanese Firms

In: The Economics of Interfirm Networks

Author

Listed:
  • Kazuo Ogawa

    (Osaka University)

Abstract

This chapter examines the nature of bank-Firm relationships in Japan by investigating firms’ cash holding behavior based on a panel dataset of Japanese firms for the 2000s provided by Teikoku Databank. This dataset has the virtue of identifying firms’ main bank(s) or financial institution(s) with which they have a close relationship. This information is used to characterize the cash holding behavior of firms with varying degrees of closeness in their relationships with banks. The findings indicate that having a main bank relationship helps client firms in their cash management in two important ways. First, firms need to hold less cash for precautionary motives because main banks are ready to provide them with liquidity on a rainy day. Second, main banks can cushion shocks to client firms, so that client firms can keep the adjustment of cash holdings to such shocks to a minimum. However, client firms pay a price for maintaining long-term, stable relationships with main banks, namely, the monopoly rent imposed by main banks on their client firms in the form of a higher effective borrowing rate.

Suggested Citation

  • Kazuo Ogawa, 2015. "What do Cash Holdings Tell us About Bank-Firm Relationships? A Case Study of Japanese Firms," Advances in Japanese Business and Economics, in: Tsutomu Watanabe & Iichiro Uesugi & Arito Ono (ed.), The Economics of Interfirm Networks, edition 127, chapter 11, pages 215-235, Springer.
    • Handle: RePEc:spr:advchp:978-4-431-55390-8_11
    DOI: 10.1007/978-4-431-55390-8_11
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    Cited by:

    1. Masanori Orihara & Yoshiaki Ogura & Yue Cai, 2022. "Borrowing in Unsettled Times and Cash Holdings Afterwards," Working Papers 2207, Waseda University, Faculty of Political Science and Economics.

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