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Lending relationships and a corporate liquidity shortage: Evidence from the COVID‐19 shock in Japan

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  • Daisuke Tsuruta

Abstract

We investigate the effects of lending relationships between banks and borrowers on loan supply during the economic shock caused by the coronavirus (COVID‐19) pandemic. Using bank–firm matched data for Japan to control for several firm‐ and bank‐specific unobserved effects, we show that banks with close relationships with borrowing firms offer more bank loans to these firms during the COVID‐19 shock. This effect is larger if the borrowing firms' cash flows decrease substantially during the shock. These results imply that banks acted as liquidity providers for borrowers during sudden and unpredictable shocks if their relationships with firms were close.

Suggested Citation

  • Daisuke Tsuruta, 2022. "Lending relationships and a corporate liquidity shortage: Evidence from the COVID‐19 shock in Japan," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3548-3567, December.
    • Handle: RePEc:wly:mgtdec:v:43:y:2022:i:8:p:3548-3567
    DOI: 10.1002/mde.3613
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    References listed on IDEAS

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    Cited by:

    1. Ye, Dezhu & Ji, Wenjun & Sun, Nan, 2025. "Corporate diversification strategies and bankruptcy risk: A re-examination based on COVID-19," Journal of Asian Economics, Elsevier, vol. 99(C).

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