Download or read book Lending Relationships and the Transmission of Liquidity Shocks written by Yiyi Bai and published by . This book was released on 2017 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: We exploit a liquidity crunch of 2013 in China as a negative shock to banks and analyze the wealth effects on listed firms. Our findings show that liquidity shocks to financial institutions impact borrowers' performance negatively. However, firms having long-term relationship with banks outperformed in stock market and subsequently experiecend a smaller decline in cash holding than their peers without such relationship. This effect is the strongest for firms whose relationship banks are foreign banks, and the weakest for firms whose relationship banks are local banks. We also document a positive correlation between firms' stock performances and their banks' stock performances, as well as banks' liquidity in the interbank market. These results suggest that banks transmit liquidity shocks to their borrowing firms and that the long-term bank-firm relationship can mitigate such negative effcts.