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Review of Quantitative Finance and Accounting

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09.04.2021 | Original Research

The cash-holding link within the supply chain

verfasst von: Tri Tri Nguyen, Manh Cuong Nguyen, Hung Quang Bui, Tuyet Nhung Vu

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 4/2021

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Abstract

Using a customer–supplier matched sample of US-listed firms from 1980 to 2016, we study the corporate cash-holding relationship between suppliers and their major customers. The key findings suggest that the cash-holding levels of suppliers are positively affected by those of their major customers, consistent with the liquidity argument. The effects are more pronounced when the major customers are in more favourable financial conditions and when they are considered more important to their suppliers. Our results are robust to various endogeneity problems and additional tests. Taken together, these results bring forth an important corporate cash-holding link within the supply chain.

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In this study, we define major customers (excluding government ones) as their suppliers’ largest customers.

In the finance literature, growth opportunities have usually been used as a measure of financial constraint (Opler et al. 1999; Bates et al. 2009). However, in this study, major customers with more growth opportunities are not necessarily considered financially constrained given that the majority of customer firms in our sample are very large and well established.

In one of our unreported analyses, we retain observations in which the customer–supplier relationship has existed for less than five years and find that this does not qualitatively change our OLS results on the positive link between suppliers’ and their major customers’ cash holdings.

We create a dummy variable C_HighCash, which is equal to one if the customers’ cash holdings are higher than or equal to the median level for all firms, and zero otherwise. We then run a probit regression between C_HighCash and the control variables. Using an odds ratio of having a cash-rich major customer, we match each treated firm with one control firm using nearest-neighbour matching, with a caliper of 0.01 and no replacement.

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Titel: The cash-holding link within the supply chain
verfasst von: Tri Tri Nguyen
Manh Cuong Nguyen
Hung Quang Bui
Tuyet Nhung Vu
Publikationsdatum: 09.04.2021
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 4/2021
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-021-00979-0

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