This paper presents an empirical analysis of how the deterioration of a main bank's health affects the behavior of its corporate customers. This study uses micro survey data of small and medium-size enterprises (SMEs) where we can identify the main banks of the sampled SMEs. We find that a higher bad loan ratio of the main bank restrains its lending to corporate customers, leading to reductions of investment, employment and their liquid assets. But at the same time corporate customers pile up liquid assets as a precautionary motive to cope with further worsening of a bank's health in the future.
