Ajid , ur Rehman and Wang, Man and Kabiraj, Sajal
(2016)
Dynamics Of Corporate Cash Holdings In
Chinese Firms: An Empirical Investigation Of
Asymmetric Adjustment Rate And Financial
Constraints.
Asian Academy of Management Journal of Accounting and Finance, 12 (2).
pp. 1-26.
ISSN 1823-4992
Abstract
Grounded in the notion of speed of adjustment this study investigates the adjustment rate of
corporate cash holdings and financial constraints in Chinese firms. For this purpose data
of 867 A-listed Chinese firms over a 14 years period (2001–2014) is analysed. The study
applies Arellano and Bond (GMM2) and Blundell and Bond (GMM1) dynamic panel data
model to investigate asymmetric speed of adjustment. We report considerable evidence
about asymmetric adjustment of corporate cash holdings, i.e., downward adjustment rate
is significantly higher than upward adjustment rate. This higher downward adjustment rate
holds even after controlling for financial constraints. Moreover financial constraints also
play an important role in dynamic cash adjustment. Financially unconstrained firms are
found to adjust faster to their target cash holdings as compared to financially constrained
firms. The high speed of adjustment for above target cash level firms holds even after
controlling for financial constraints
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