Impacts of Cash holdings of suppliers/customers on a firm’s credit risk
碩士 === 國立臺灣大學 === 財務金融學研究所 === 100 === The global financial crisis in 2008 highlighted the phenomenon that default risk and liquidity crunch spread through business counterparties of a supply chain via the fluctuations of production flow, cash flow and information flow. According to the precautionar...
| Main Authors: | , |
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| Format: | Others |
| Language: | en_US |
| Published: |
2012
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| Online Access: | http://ndltd.ncl.edu.tw/handle/59289806385290161969 |
| Summary: | 碩士 === 國立臺灣大學 === 財務金融學研究所 === 100 === The global financial crisis in 2008 highlighted the phenomenon that default risk and liquidity crunch spread through business counterparties of a supply chain via the fluctuations of production flow, cash flow and information flow. According to the precautionary motive of a firm to hold cash, cash holding of a firm’s suppliers and customers reduce their insolvency risk and therefore mitigate the firm’s credit risk. We use American firm data from 2001 to 2010 to examine the impact of suppliers’ and customers’ cash holdings on a firm’s credit risk. Empirical results of this study show that the cash holdings of suppliers and customers have significantly negative impacts on corporate bond yield spreads when controlling bond yield spread determinant variables well known in literature. This study also finds that the negative relation between a firm’s credit risk and the cash holdings of its suppliers (customers) becomes weaker when suppliers (customers) have higher level of operating net cash flow. Moreover, higher level of investing net cash flow of suppliers (customers) enhances the negative relation while the financing net cash flow of suppliers (customers) has insignificant impact on the negative effect.
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