Firm Size, Industry and Firm Liquidity in a Crisis: Evidence from A-Share Chinese Corporations

42 Pages Posted: 25 May 2014

See all articles by Gbenga Ibikunle

Gbenga Ibikunle

University of Edinburgh; European Capital Markets Cooperative Research Centre

Zebin Wang

Soochow University

Qiuming Wang

Soochow Securities Co. Ltd.

Date Written: April 1, 2014

Abstract

We investigate the drivers of firm liquidity in the world’s largest emerging economy and around the last global financial crisis cycle. Using data from 654 Shanghai Stock Exchange-listed Chinese firms across 12 industries over the period 2007-2012; we particularly focus on industry and size effects. Small and medium sized firms dramatically increase cash holdings during periods of economic crisis, and although large firms on average increase their holdings as well, they do so at a slower pace. We find that the trade-off, pecking order and agency theories are relevant and applicable to the Chinese context. However, given the lax regulatory environment in which the firms operate, corporate governance factors are found to be weak explanatory factors for cash holding behaviour. We also document several significant industry and size-based dynamics relating to the studied determinants of firm cash holding behaviour. The results obtained are robust to alternative definitions of firm liquidity. Overall, the results point to both consistencies with and clear deviations from existing knowledge on firm cash holding behaviour.

Keywords: Cash holding, Trade-off theory, Pecking order theory, Agency theory, Shanghai Stock Exchange

JEL Classification: G32, G34

Suggested Citation

Ibikunle, Gbenga and Wang, Zebin and Wang, Qiuming, Firm Size, Industry and Firm Liquidity in a Crisis: Evidence from A-Share Chinese Corporations (April 1, 2014). Available at SSRN: https://ssrn.com/abstract=2440692 or http://dx.doi.org/10.2139/ssrn.2440692

Gbenga Ibikunle (Contact Author)

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

European Capital Markets Cooperative Research Centre ( email )

Viale Pidaro 42
Pescara, 65121
Italy

Zebin Wang

Soochow University

No. 1 Shizi Street
Taipei, Jiangsu 215006
Taiwan

Qiuming Wang

Soochow Securities Co. Ltd.

181 Crest Road
Suzhou
China

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