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.
Bibliographical noteFunding Information:
We are grateful to Cheng-Few Lee (the Editor in Chief) and the anonymous referees for their constructive comments and suggestions that have greatly improved our paper. We gratefully acknowledge Viet Anh Dang, Chau Minh Duong, Sunitha Narendran and participants at seminars at University of Brighton as well as University of Westminster for their helpful comments and suggestions on previous versions of the paper.
- Cash holdings
- Customer–supplier relationships
- Supply chain