25 Years IWH

cover_DP_2017-8.jpg

Suppliers as Liquidity Insurers

We examine how financial constraints in portfolios of suppliers affect cash holdings at the level of the customer. Utilizing a data set of private and public French companies and their suppliers, we show that customers rely on their financially unconstrained suppliers to provide them with backup liquidity, and that they stockpile approximately 10% less cash than customers with constrained suppliers. This effect persisted during the global financial crisis, highlighting that suppliers may be viable insurers of liquidity even when financing from banks and other external channels is unavailable. We further show that customers with unconstrained suppliers also simultaneously receive more trade credit; that the reduction in cash holdings is greater for firms with stronger ties to their unconstrained suppliers; and that customers reduce their cash holdings following a significant relaxation in their suppliers’ financial constraints through an IPO. Taken together, the results provide important nuance regarding the implications of supplier portfolios and financial constraints on firm liquidity management.

09. March 2017

Authors Reint E. Gropp Daniel Corsten Panos Markou

Whom to contact

For Researchers

For Journalists

Stefanie Müller
Stefanie Müller
Press Officer

If you have any further questions please contact me.

+49 345 7753-720 Request per E-Mail
Mitglied der Leibniz-Gemeinschaft LogoTotal-Equality-LogoWeltoffen Logo