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Distance produces the fear of loss: Customer geographic proximity and corporate cash holdings

Author

Listed:
  • Wang, Li
  • Wu, Yiqi
  • Chen, Yaxin
  • Dai, Yunhao

Abstract

Suppliers usually worry about losing important customers far away. This study examines the effect of long-distance customers on the supplier's cash holdings in China. We find that firms with long-distance major customers tend to hold more cash holdings, and the exogenous opening of the high-speed rail can reduce the effects of distant customers. Our results still hold when considering the endogeneity concerns. The cross-sectional tests suggest that the impact of long-distance customers is more pronounced for firms that have fewer accounts receivables and a larger customer concentration. Furthermore, we document that suppliers with a long-distance supply chain relationship hold more cash mainly due to the precautionary motive. Overall, we highlight that the distance between suppliers and customers is an important factor that affects a firm's cash holdings policy, and we also provide some suggestions for both suppliers and policymakers.

Suggested Citation

  • Wang, Li & Wu, Yiqi & Chen, Yaxin & Dai, Yunhao, 2023. "Distance produces the fear of loss: Customer geographic proximity and corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:finana:v:87:y:2023:i:c:s1057521923000881
    DOI: 10.1016/j.irfa.2023.102572
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    More about this item

    Keywords

    Customer-supplier relationships; Geographic proximity; Cash holdings; China;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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