Corporate Cash Holdings and Adjustment Behaviour in Chinese Firms: An Empirical Analysis Using Generalized Method of Moments

Authors

Ajid ur Rehman, Dongbei University of Finance and Economics, Dalian, P.R. ChinaFollow
Man Wang, Dongbei University of Finance and Economics, Dalian, P.R. China

Abstract

This study is intended to find out the motives of cash holding in Chinese firms and theories associated with these motives. The study is unique because it not only estimates the adjustment speed of corporate cash holdings but also discuss several firm specific factors that affects cash holdings in Chinese firms with special reference to Chinese SOEs and NSOEs. An extensive set of panel data comprising 1632 A listed Chines firms, over a period from 2001 to 2013 are taken for analysis. The study reports a lower adjustment coefficient for Chinese firms compared to other developed nations. The study finds that target level of cash holdings in Chinese firms is better explained by Trade off and Pecking order theories. To cope with issues of endogeneity and serial correlation the study apply GMM and random effects model with an added AR (autoregressive) term.

Recommended Citation

Rehman, Ajid ur and Wang, Man, Corporate Cash Holdings and Adjustment Behaviour in Chinese Firms: An Empirical Analysis Using Generalized Method of Moments, Australasian Accounting, Business and Finance Journal, 9(4), 2015, 20-37. doi:10.14453/aabfj.v9i4.3