Bank Relations, Cash Holdings, and Firm Value: Evidence from Japan

摘要

This paper tests two views of bank's role for Japanese firms. The views are confronted with the empirical evidence, allowing them to compete to explain firm's cash holding decisions and the implication of cash holdings on firm value. We find that firms with closer bank relations hold less cash, but some of them are over-borrowing. Our results show that banks do not monitor their client firms and are unlikely to push the managers of the firms to take efficient actions on maximizing firm value. We discover that cash holdings cause more severe agency conflicts for the firms who have the closer relations with the banks.