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Cash Holdings along the Supply Chain: The Downstream Evidence

Author

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  • Fang Chen

    (University of New Haven)

  • Jian Huang

    (Towson University)

  • Jianjun Jia

    (ShanghaiTech University)

Abstract

We examine the downstream effect of cash holdings along the supply chain. Using a supplier-customer sample from 1989 to 2009, we find evidence that a supplier’s large cash holdings increase its customers’ demand for cash reserves, suggesting that the negative risk spillover effect dominates the positive trade credit effect from a supplier to its customers. This finding is robust to alternative specifications of Two-Stage Least Squares, and the positive downstream impact on cash holdings is amplified during the financial crisis. We also find that the effect is stronger under the condition of a more substantial risk spillover effect or a weaker trade-credit effect.

Suggested Citation

  • Fang Chen & Jian Huang & Jianjun Jia, 2022. "Cash Holdings along the Supply Chain: The Downstream Evidence," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(2), pages 452-471, April.
    • Handle: RePEc:spr:jecfin:v:46:y:2022:i:2:d:10.1007_s12197-022-09573-z
    DOI: 10.1007/s12197-022-09573-z
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    References listed on IDEAS

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    More about this item

    Keywords

    Supply chain; Cash holding; Precautionary motive; Risk spillover; Trade credit;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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