Does a firm’s supplier concentration affect its cash holding?

High supplier concentration (SC) of a firm can weaken the firm’s bargaining power, which reduces its profitability and internal funds. Also, high SC likely increases the firm’s exposure to supply shocks, which results in high costs of external financing. Consequently, high-SC firms will incline to hold more cash due to the precautionary concern. However, there is little research into the effect of SC on cash holdings. This paper investigates how SC affects cash holdings with Chinese firms over 2009–2016. We find that a firm’s cash holding increases with its SC. Further investigations show that this positive relation stems from the unfavorable impact of SC on trade credit and equity financing. Our results are robust to different tests including the instrumental variable approach and the propensity score matching. Our findings are new to the literature and help to explain the cash holding puzzle. Our study also indicates that choosing supplier concentration adequately is important in maintaining a firm’s financial health.     

Financialization,Shareholder Orientation and the Cash Holdings of US Corporations

Growth in the cash holdings of US nonfinancial corporations (NFCs) has received considerable attention in recent years. These cash holdings constitute a primary component of the growth in firm-level financial asset holdings often highlighted in analyses of the ‘financialization’ of NFCs. In this article, I use a panel of US corporations to empirically analyze two links between corporate cash holdings and the literature on financialization. First, I find a small but positive relationship between cash holdings and shareholder value ideology among large corporations. I capture the growing entrenchment of shareholder ideology using average industry-level stock repurchases, to proxy for industry-level norms encouraging managers to target stock price-based indicators of firm performance. Second, I find a positive relationship between a firm's cash holdings and a measure of the differential it earns between interest income and expense. Given that cash is classified with short-term marketable (and, therefore, interest-bearing) securities on firm balance sheets, this result lends empirical support to the hypothesis that traditionally nonfinancial firms are increasingly engaged in borrowing and lending for profit.     

Business cycles and research investment

This paper examines the impact of uncertainty and the business cycle on US high-tech manufacturing firms’ research investment. Although the reliance on internal financing suggests firms will consider uncertainty and the business cycle when determining their research budget, little is known about how the business cycle and uncertainty influence research investment. Using firm-level data on sales, cash flow, and industry-level indicators of the business cycle, this paper finds that the firm's response to the business depends on the firm's industry and the industry's current location in the business cycle. The data also shows that the business cycle also depresses the firm's reaction to changes in sales and cash flow. Uncertainty clearly reduces research efforts, although non-linearly.     

Bank loan supply shocks and leverage adjustment

We investigate the effect of bank loan supply shocks on firms’ leverage adjustment. We show that the impact of bank shocks is larger for firms with greater dependence on financially troubled banks. We measure firms’ pre-crisis loan dependence on troubled banks by using matched firm–bank loan data. Using the boom-bust cycle from 1987 to 2014 in Japan as a quasi-experiment, we find that financially constrained firms adjust their leverage slower during credit-crunch periods than during other periods. During credit-crunch periods following banking crisis, firms associated with failing banks or with banks that have a limited capacity to supply loans show a slower adjustment than other firms. Bank shocks have significant effects on small firms’ adjustment but not on that of large firms. These results are robust when we consider demand-side effects and perform other robustness tests. Our results imply that bank shocks have a persistent effect on borrowers’ leverage.     

Democracy favors access to credit of firms

Access to credit is one of the main obstacles for the growth of firms. We test the hypothesis that democracy exerts an impact on access to credit. We perform regressions at the firm-level on a large dataset of 46,000 firms in 108 countries. We find evidence of a negative relationship between democracy and credit constraints for firms. We further establish that democracy contributes to reduce borrower discouragement and leads to more bank loan approval decisions. Our key finding is therefore that democracy favors firms' access to credit. Our work contributes to the debate on the impact of democracy on economic development by considering one firm-level channel of transmission.     

Internal financial constraints and firm productivity in China: Do liquidity and export behavior make a difference?

Financial factors have been found highly important in influencing firms’ real activities and in promoting aggregate growth. Yet, the linkage between finance and firm-level productivity has been overlooked in the literature. We fill this gap using a panel of 130,840 Chinese manufacturing firms over the period 2001–2007 to estimate a TFP model augmented with cash flow. We find that, especially for illiquid foreign and private firms, productivity is strongly constrained by the availability of internal finance. Furthermore, contrary to private firms, foreign non-exporters display higher dependence of productivity on cash flow than exporters.     

Financing R&D in Chinese private firms: Business associations or political connection?

Using a new and unique dataset of Chinese private firms, this paper explores how private firms access bank loans to finance innovative activities. The results reveal that political connection, rather than membership in a government-controlled business association, largely determines private firms' innovations by providing access to bank loans. Furthermore, the “grease-the-wheels” mechanism of political connection is stronger if the firms are more constrained financially, located in regions with low levels of financial development, or located in regions with relatively under-developed institutional environments. Finally, cash flow, used to measure internal financing, and trade credit, used to measure informal financing, are important alternative financing channels and support firms' R&D investments. Our paper implies that China's government needs to continue fostering a good financing environment and supporting innovation activities.     

CORPORATE CASH HOLDINGS AND CREDIT LINE USAGE

We investigate the factors driving the unprecedented rise in corporate liquidities since the 1970s. We find that an economy‐wide reduction in the cost of holding liquidities and an increase in risk best explain the rise in cash holdings and the widespread use of credit lines. The structural estimation results shed light on two widely acknowledged motives for holding cash. The precautionary motive and the liquidity motive translate risk exposure into cash holdings. Our results, however, do not suggest that firms have become more prudent over time. It is higher liquidity needs that has forced firms to hold more cash and use more credit lines.     

Does bank shareholding impact corporate innovation? Evidence from China

Corporate innovation is an engine of economic development, while bank shareholding is the phenomenon of having a bank as a shareholder. Their relationship, however, has been underexamined. We provide the first study on the direct impact of bank shareholding on corporate innovation. Using patents granted to Chinese firms from 1999 to 2013, our findings suggest that bank shareholding significantly contributes to corporate innovation. Additional analysis suggests that easing financial constraints can facilitate the positive impacts of bank shareholding on corporate innovation. We also find that bank shareholding works better when firms have effective external monitoring and when they are nonstate-owned firms with nonstate-owned banks as shareholders. We contribute to the literature by showing that (1) despite the restrictions some countries impose on bank shareholding, allowing it could be a good economic policy for promoting corporate innovation, and (2) successful corporate innovation requires proper monitoring and incentives.     

Are monetary policy shocks causal to bank health? Evidence from the euro area

Despite considerable efforts of the European Central Bank (ECB) to support bank intermediation after the 2008 financial crisis, the recovery of euro area banks remained incomplete. Although many studies indicate that central banks can influence the stock prices of firms through their policy actions and communication, a knowledge gap exists as to whether the ECB's monetary policy can influence bank health. Through a high-frequency identification approach, this study reveals that the causal effect of conventional monetary policy action and communication by the ECB on bank stock prices differed over time, whereas its influence on bank financing costs was robust. This study provides new evidence showing that information effects related to policy easing surprises in the aftermath of the 2008 financial crisis hampered the ECB efforts to improve bank health and that its Odyssean communication signals (related to forward-looking announcements of policy easing) supported bank health during this phase. Local projections suggest that the response of banks to monetary policy shocks displayed some persistence, where ECB policy surprises and communications that shifted up (down) the yield curve were normally positive (negative) for bank health. The findings solicit a new perspective when assessing the influence of the ECB's monetary policy measures on euro area banks.     

Do internal markets influence bank failures?

Empirical studies analysing the determinants of bank failures ignore the role of bank holding company affiliation in these failures. In this article, we propose a new approach of estimating affiliated banks’ failures that incorporates holding companies’ role in failures. Our logit regression results show that the holding company’s features, especially internal flows, mattered on failures more than those of the banks during the sub-prime mortgage crisis.     

货币政策对金融生态的影响机理及实证检验——基于上市商业银行面板数据的分析

传统的货币理论忽视了货币政策对银行风险承担及金融生态的影响,文章从商业银行的微观视角出发研究了货币政策对金融生态的影响机理。理论层面,金融生态与货币政策制度供给、传导机制和有效性相互关联,货币政策则通过资产价格或估值机制、收入及现金流机制、追求收益机制、杠杆调整机制、道德风险机制和风险转移机制影响商业银行的风险承担;实证层面,构建了货币政策影响商业银行信贷投放和风险承担的数理模型,选取国有和股份制两类共12家上市商业银行2008-2013年的面板数据进行固定效应模型实证检验。结果表明,宽松货币政策导致商业银行的信贷投放规模增加、风险承担意愿增强,有利于优化金融生态,反之则反是;国有商业银行对货币政策变化更敏感,而股份制商业银行对金融生态更敏感。因此,在我国宏观经济管理中,需要货币政策与宏观审慎政策相互协调配合。     

Waste disclosure and corporate cash holdings

ABSTRACT

In this paper, we address an important and emerging question: Can firms’ voluntary waste disclosure affect corporate cash holdings? Using a sample of S&P 500 firms, we find strong evidence for a positive relationship between waste disclosure and the cash holding policy of firms. Furthermore, we find that waste disclosure significantly increases cash holdings only for firms with strong corporate governance quality. We also find that the significant relationship between waste disclosure and cash holdings remains unchanged only for firms that operate in environmentally sensitive industries. Our paper provides novel evidence on the role of voluntary waste disclosure as an environmental dimension that influences the cash policy of firms and highlights the little-known issue of waste disclosure as a significant research topic.     

Risk sharing and export performance with firm heterogeneity

We investigate how market uncertainty affects the export performance of a firm through financial frictions. We first extend Melitz's (2003) heterogeneous firm trade model by incorporating demand shocks, linking the demand uncertainties to the financing costs of firms. In this extension, the default probability is endogenously determined by a firm's productivity and demand uncertainty. Hence, firms with higher productivity or lower market uncertainty are offered lower interest rates and thus show better export performance. As an application, we also show that a risk-sharing mechanism, that pools default risk for a certain group of firms, lowers the default risk. This mechanism allows banks to charge lower interest rates to the member firms and therefore ultimately improves their export performance in both extensive and intensive margins. We find a real-world example of such a mechanism from business groups in Korea. Using Korean firm-level data, we show that the more diversified the business group, the greater the likelihood that its member firms export and the bigger their export revenues. We also show that our results are robust to alternative explanations for Korean business groups’ export competitiveness.     

不完全信息条件下的出口与信贷约束——来自中国的理论与证据

文章讨论了在"银行-企业"不完全信息条件下,国内企业和出口企业面对的信贷约束为何不同.由于企业的生产率等信息对于银行而言属于内部信息,银行为了保持激励相容,会向企业提供少于企业所需最优数量的贷款.这种贷款的约束构成了企业面对的信贷约束.出口企业的运输时间越长,相比国内企业就会面临更紧的信贷约束.使用中国企业的数据验证这一理论,我们发现,对中国企业而言,出口业务占比越大、运输时间越长、生产率差异越大,企业面临的信贷约束也就越紧.     

银行关系、政治联系与民营企业贷款——来自中国民营上市公司的经验证据

本文以1990-2008年间非金融类民营上市公司为样本,检验银行关系和政治联系是否影响银行贷款。研究结果发现,那些聘请了现在或曾经在银行工作的人士担任总经理或董事的企业能够获得更多的银行贷款。但是,在没有银行关系的民营企业中,政治联系并不能促进企业获得更多的银行贷款。同时建立政治联系和银行关系的企业也没有能够比只建立其中一种关系的企业获得更多的银行贷款。这些结论表明,在中国基于非正式的关系确实可以给受到融资约束的民营企业带来银行贷款方面的融资便利。其中,银行关系相对于政治联系是一种更为普遍和有效的非正式关系。     

Forex interventions and exchange rate exposure: Evidence from emerging market firms

Foreign exchange (forex) interventions by central banks have recently become too frequent in emerging markets. The effects of these interventions on exchange rate volatility are widely documented, but their implications for firm-level outcomes have rarely been examined. This study argues that forex interventions should influence the sensitivity of firms’ cash flows to currency movements. Accordingly, I address a novel question regarding the effect of forex interventions on emerging market firms’ exchange rate risk exposure. I find an asymmetric effect, such that the impact of forex purchase interventions differs from that of forex sale interventions. Moreover, the positive effects of forex sale interventions on the magnitude of firms’ exposure are more pronounced during depreciation periods. Study findings imply that firms remain unhedged, given that interventions are perceived as implicit government guarantees against currency fluctuations. Credible communication from policymakers regarding the motives for interventions by central banks would assist in alerting firms to potential currency risks.     

Trade and unions: Does size matter?

Our empirical analysis builds upon the hypothesis that unions are detrimental to a firm's efficiency. Using a rich survey of German manufacturers, we investigate firm-level determinants on the probability of collective wage bargaining with particular focus on the impact of a firm's engagement in foreign markets. An interesting and very robust finding is that exporters are less likely to engage in union wage bargaining. This finding is in line with a pessimistic perception of unions. The negative effect of collective bargaining can be offset by efficiency gains for larger exporters, who can benefit from operation cost saving effects. Size does matter as larger firms export and may find bargaining with a single entity representing the workforce more convenient than bargaining with each worker individually. We are using firm level information on IT investment as instrument for the export dummy and successfully test for the validity of this instrument.     

Effects of main bank switching on new business bankruptcy

This paper examines the effects of main bank switching on the probability of bankruptcy of new small businesses using a propensity score matching estimation approach. We use a unique firm-level dataset of approximately 1,000 small and medium-sized enterprises (SMEs) incorporated in Japan; these SMEs are young and unlisted just after incorporation. We find that switching main bank relationships increases the probability of firm bankruptcy. In addition, the result holds only when the relationship between the firm and its main bank is terminated. Specifically, the probability of bankruptcy increases when firms switch their main banks to financial institutions with which they have not previously transacted, and when the ex-post main banks are not affiliated financial institutions of their ex-ante main banks. These results may be because such switching worsens the financial condition of client firms, and thus, it leads to bankruptcy.     

Debt financing,soft budget constraints,and government ownershipEvidence from China1

Debt financing is expected to improve the quality of corporate governance, but we find, using a large sample of public listed companies (PLCs) from China, that an increase in bank loans increases the size of managerial perks and free cash flows and decreases corporate efficiency. We find that bank lending facilitates managerial exploitation of corporate wealth in government‐controlled firms, but constrains managerial agency costs in firms controlled by private owners. We argue that the failure of corporate governance may derive from the shared government ownership of lenders and borrowers, which nurtures soft budget constraints.