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No Lending Relationships and Liquidity Management of Small Businesses during a Financial Shock

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  • TSURUTA Daisuke

Abstract

We investigate the determinants of the end of lending relationships with banks using small business data. We also investigate how small businesses without lending relationships financed credit demand during the global financial shock. First, we find that firms with high internal cash holdings, lower growth, and low working capital were more likely to end lending relationships with banks. Supply-side effects on the determinants of the end of relationships are insignificant. Second, when firms experienced credit demand during the financial shock, those with lending relationships increased bank borrowings while those without lending relationships reduced internal cash. However, if we examine cash-rich firms, both firms with and without relationships reduced cash holdings to finance working capital during the shock period. Third, firm performance (in terms of profitability) was neither lower nor higher for firms that did not have lending relationships with banks during the shock period.

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  • TSURUTA Daisuke, 2015. "No Lending Relationships and Liquidity Management of Small Businesses during a Financial Shock," Discussion papers 15051, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:15051
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    3. Iuliia S. Pinkovetskaia & Igor V. Balynin, 2018. "Structure of Small and Medium-Sized Business- Results of Total Statistic Observations in Russia," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 14(1), pages 143-158.

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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