IDEAS home Printed from https://ideas.repec.org/a/eee/jjieco/v67y2023ics0889158322000508.html
   My bibliography  Save this article

The effects of credit lines on cash holdings and capital investment: Evidence from Japan

Author

Listed:
  • Honda, Tomohito

Abstract

This study examines how credit lines affect corporate cash holdings and capital investment using a hand-collected data on publicly traded Japanese firms from 2006 to 2017. The study compares firms with and without credit lines to investigate the effects of credit lines. The empirical results are as follows: (1) Firms with credit lines hold smaller cash reserves than those without; (2) Firms with credit lines undertake more capital investment than those without; (3) The effects of credit lines are more amplified for financially constrained firms than their counterpart; (4) A close bank–firm relationship plays a positive role in the effect of credit lines on corporate activities.

Suggested Citation

  • Honda, Tomohito, 2023. "The effects of credit lines on cash holdings and capital investment: Evidence from Japan," Journal of the Japanese and International Economies, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:jjieco:v:67:y:2023:i:c:s0889158322000508
    DOI: 10.1016/j.jjie.2022.101241
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0889158322000508
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jjie.2022.101241?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ushijima, Tatsuo, 2020. "More-money and less-cash effects of diversification: Evidence from Japanese firms," Japan and the World Economy, Elsevier, vol. 56(C).
    2. Wei Jiang, 2017. "Have Instrumental Variables Brought Us Closer to the Truth," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 6(2), pages 127-140.
    3. Thomas W. Bates & Kathleen M. Kahle & René M. Stulz, 2009. "Why Do U.S. Firms Hold So Much More Cash than They Used To?," Journal of Finance, American Finance Association, vol. 64(5), pages 1985-2021, October.
    4. Patrick Bolton & Hui Chen & Neng Wang, 2011. "A Unified Theory of Tobin's q, Corporate Investment, Financing, and Risk Management," Journal of Finance, American Finance Association, vol. 66(5), pages 1545-1578, October.
    5. Leigh A. Riddick & Toni M. Whited, 2009. "The Corporate Propensity to Save," Journal of Finance, American Finance Association, vol. 64(4), pages 1729-1766, August.
    6. Murillo Campello & Erasmo Giambona & John R. Graham & Campbell R. Harvey, 2011. "Liquidity Management and Corporate Investment During a Financial Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1944-1979.
    7. Guney, Yilmaz & Karpuz, Ahmet & Ozkan, Neslihan, 2017. "R&D investments and credit lines," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 261-283.
    8. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    9. Patrick Bolton & Xavier Freixas & Leonardo Gambacorta & Paolo Emilio Mistrulli, 2016. "Relationship and Transaction Lending in a Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 29(10), pages 2643-2676.
    10. Acharya, Viral V. & Almeida, Heitor & Campello, Murillo, 2007. "Is cash negative debt? A hedging perspective on corporate financial policies," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 515-554, October.
    11. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    12. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    13. Han, Seungjin & Qiu, Jiaping, 2007. "Corporate precautionary cash holdings," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 43-57, March.
    14. Joe, Denis Yongmin & Oh, Frederick Dongchuhl, 2018. "Credit ratings and corporate cash holdings: Evidence from Korea’s corporate reform after the 1997 Asian financial crisis," Japan and the World Economy, Elsevier, vol. 45(C), pages 9-18.
    15. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    16. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 33-60.
    17. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    18. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
    19. Heitor Almeida & Murillo Campello & Michael S. Weisbach, 2004. "The Cash Flow Sensitivity of Cash," Journal of Finance, American Finance Association, vol. 59(4), pages 1777-1804, August.
    20. Sasaki, Toshinori & Suzuki, Katsushi, 2019. "Bank health and cash holdings: Evidence from a bank-centered financial market," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    21. Cem Demiroglu & Christopher James & Atay Kizilaslan, 2012. "Bank Lending Standards and Access to Lines of Credit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(6), pages 1063-1089, September.
    22. Takeo Hoshi & Anil K. Kashyap & David Scharfstein, 1990. "The role of banks in reducing financial distress in Japan," Finance and Economics Discussion Series 134, Board of Governors of the Federal Reserve System (U.S.).
    23. Caroline H. Cagle, 1956. "Credit lines and minimum balance requirements," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 573-579.
    24. Amir Sufi, 2009. "Bank Lines of Credit in Corporate Finance: An Empirical Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1057-1088, March.
    25. Amir Sufi, 2009. "Bank Lines of Credit in Corporate Finance: An Empirical Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1057-1088.
    26. Lins, Karl V. & Servaes, Henri & Tufano, Peter, 2010. "What drives corporate liquidity? An international survey of cash holdings and lines of credit," Journal of Financial Economics, Elsevier, vol. 98(1), pages 160-176, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xiaohui Chen & Wen Chen & Tao Hu & Bo Yang & Jianguang Zeng, 2023. "Regional carbon efficiency and corporate cash holdings: evidence from China," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-11, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Honda, Tomohito, 2022. "The Effects of Credit Lines on Cash Holdings and Capital Investment: Evidence from Japan," RCESR Discussion Paper Series DP22-2, Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University.
    2. Sasaki, Toshinori & Suzuki, Katsushi, 2019. "Bank health and cash holdings: Evidence from a bank-centered financial market," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    3. Heitor Almeida & Murillo Campello & Igor Cunha & Michael S. Weisbach, 2014. "Corporate Liquidity Management: A Conceptual Framework and Survey," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 135-162, December.
    4. Arnold, Marc, 2014. "Managerial cash use, default, and corporate financial policies," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 305-325.
    5. Nyborg, Kjell & Wang, Zexi, 2013. "Stock Liquidity and Corporate Cash Holdings," CEPR Discussion Papers 9535, C.E.P.R. Discussion Papers.
    6. Gryglewicz, Sebastian, 2011. "A theory of corporate financial decisions with liquidity and solvency concerns," Journal of Financial Economics, Elsevier, vol. 99(2), pages 365-384, February.
    7. Davide Dottori & Giacinto Micucci, 2018. "Corporate liquidity in Italy and its increase in the long recession," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(3), pages 981-1014, December.
    8. Ma, Liang & Mello, Antonio S. & Wu, Youchang, 2020. "First-mover advantage, time to finance, and cash holdings," Journal of Corporate Finance, Elsevier, vol. 62(C).
    9. Ghada Tayem, 2017. "To Bank or Not to Bank: The Determination of Cash Holdings and Lines of Credit," Working Papers 1130, Economic Research Forum, revised 08 2017.
    10. Amess, Kevin & Banerji, Sanjay & Lampousis, Athanasios, 2015. "Corporate cash holdings: Causes and consequences," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 421-433.
    11. Nyborg, Kjell & Wang, Zexi, 2019. "Corporate cash holdings: Stock liquidity and the repurchase motive," CEPR Discussion Papers 13791, C.E.P.R. Discussion Papers.
    12. Sun, Zhenzhen & Wang, Yaping, 2015. "Corporate precautionary savings: Evidence from the recent financial crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 56(C), pages 175-186.
    13. Tri Tri Nguyen & Manh Cuong Nguyen & Hung Quang Bui & Tuyet Nhung Vu, 2021. "The cash-holding link within the supply chain," Review of Quantitative Finance and Accounting, Springer, vol. 57(4), pages 1309-1344, November.
    14. Masanori Orihara & Yoshiaki Ogura & Yue Cai, 2022. "Borrowing in Unsettled Times and Cash Holdings Afterwards," Working Papers 2207, Waseda University, Faculty of Political Science and Economics.
    15. Cristina Martínez-Sola & Pedro J. García-Teruel & Pedro Martínez-Solano, 2018. "Cash holdings in SMEs: speed of adjustment, growth and financing," Small Business Economics, Springer, vol. 51(4), pages 823-842, December.
    16. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2012. "Financing of firms in developing countries : lessons from research," Policy Research Working Paper Series 6036, The World Bank.
    17. Choonsik Lee & Heungju Park, 2016. "Financial constraints, board governance standards, and corporate cash holdings," Review of Financial Economics, John Wiley & Sons, vol. 28(1), pages 21-34, January.
    18. Nyborg, Kjell G. & Wang, Zexi, 2021. "The effect of stock liquidity on cash holdings: The repurchase motive," Journal of Financial Economics, Elsevier, vol. 142(2), pages 905-927.
    19. Lins, Karl V. & Servaes, Henri & Tufano, Peter, 2010. "What drives corporate liquidity? An international survey of cash holdings and lines of credit," Journal of Financial Economics, Elsevier, vol. 98(1), pages 160-176, October.
    20. Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2013. "The Effects of Future Capital Investment and R&D Expenditures on Firms' Liquidity," Review of International Economics, Wiley Blackwell, vol. 21(3), pages 459-474, August.

    More about this item

    Keywords

    Credit lines; Cash holdings; Corporate investment; Financial constraints;
    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jjieco:v:67:y:2023:i:c:s0889158322000508. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622903 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.