No lending relationships and liquidity management of small businesses during a financial shock |
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| Affiliation: | 1. Postdoctoral researcher, Institute of Economic Research, Hitotsubashi University, Japan;2. Professor, Faculty of Economics, Gakushuin University and RIETI, Japan;3. Professor, Hitotsubashi University Business School, Japan;4. Professor, Faculty of Commerce, Chuo University, Japan;5. Professor, Institute of Economic Research, Hitotsubashi University and RIETI, Japan;1. IDE-JETRO, JCN 3-2-2 Wakaba, Mihama-ku, Chiba-shi, Chiba, 261-8545, Japan;2. King''s College London, Political Economy and IDI, Strand Campus, London, United Kingdom |
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| Abstract: | We investigate the determinants of the end of lending relationships with banks using small business data. We also investigate how small businesses without lending relationships financed credit demand during the global financial shock. First, we find that firms with lower growth, low working capital, and high internal cash were more likely to end lending relationships with banks. Supply-side effects on the determinants of the end of relationships are insignificant. Second, when firms experienced credit demand during the financial shock, those with lending relationships increased bank borrowings while those without lending relationships reduced internal cash. Third, firm performance (in terms of profitability) was neither lower nor higher for firms that did not have lending relationships with banks during the shock period. |
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