The effects of banking market structure on corporate cash holdings and the value of cash

Li, S., Han, L. and Mi, B. ORCID: https://orcid.org/0000-0002-5063-8673 (2024) The effects of banking market structure on corporate cash holdings and the value of cash. Journal of Empirical Finance, 75. 101460. ISSN 0927-5398 doi: 10.1016/j.jempfin.2023.101460

Abstract/Summary

We investigate the impact of the local banking market structure on the level of corporate cash holdings and the value of cash. We find that, in more concentrated banking markets, firms increase their cash holdings by issuing more equity. The marginal value of $1 cash increases by 10 cents with a one-standard-deviation increase in bank concentration. The positive relationship between bank concentration and value of cash is robust to a rich set of tests such as for firms having access to bond markets or firms using syndicated loans and is more prominent for more financially constrained firms. We also explore the mechanism, and our results suggest that in more concentrated banking markets firms demand more cash to shield against default risk.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/114465
Identification Number/DOI	10.1016/j.jempfin.2023.101460
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
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