TY  - JOUR
AB  - Purpose The purpose of this paper is to examine whether prior bank lending relationships affect firms’ liquidity management.Design/methodology/approach The authors mainly work on evaluating first, whether prior lending relationships affect corporate cash holdings? and second, whether the cash flow sensitivity of cash varies systemically with lending relationships. Three different ways are used to define lending relationships, including the lending relationship dummy, a firm’s maximum relationship intensity in terms of number of deals across all lenders and a firm’s maximum relationship intensity in terms of dollar amounts across all lenders. In addition, the paper applies two-stage least squares (2SLS) to address the concern of endogeneity between firms’ liquidity management and banking relationships.Findings The authors find that firms with lending relationships maintain a lower level of cash holdings and save less cash out of cash flow. Furthermore, the effect of lending relationships is more profound for firms with high cash flow. The results suggest that prior lending relations alleviate information asymmetry, lower the cost of capital and therefore affect firms’ propensity to retain cash and maintain a high level of cash holdings.Research limitations/implications This paper contributes to both the liquidity management literature and the literature on the value of maintaining lending relationships with banks. Researchers should take into consideration the lending relationships built over the course of the lending when assessing firms’ cash policies.Social implications Bank lending relationship mitigates the information asymmetry problem, one type of market friction, and facilitates firms’ future external financing, thereby affecting firms’ cash policies and giving more flexibility in liquidity management. The value of lending relationships distinguishes bank loans from public bonds. Therefore, firms, especially those facing more information asymmetry issue, should take into account the benefits from lending relationships in their future debt financing.Originality/value Extant literature examines how firm characteristics affect firms’ cash holdings. This paper introduces a new factor that could explain corporate cash policy.
VL  - 15
IS  - 4
SN  - 1475-7702
DO  - 10.1108/RAF-11-2015-0167
UR  - https://doi.org/10.1108/RAF-11-2015-0167
AU  - Hu Huajing
AU  - Lian Yili
AU  - Su Chih-Huei
PY  - 2016
Y1  - 2016/01/01
TI  - Do bank lending relationships affect corporate cash policy?
T2  - Review of Accounting and Finance
PB  - Emerald Group Publishing Limited
SP  - 394
EP  - 415
Y2  - 2024/04/24
ER  -