Open AccessShare Pledging and Firm Cash Holdings: Evidence from Chinese A-share Listed Firms
Author(s) -
Hongmei Xu
Publication year - 2021
Publication title -
applied finance and accounting
Language(s) - English
Resource type - Journals
eISSN - 2374-2429
pISSN - 2374-2410
DOI - 10.11114/afa.v7i2.5303
Subject(s) - business , monetary economics , cash , cash flow , dividend , investment (military) , finance , financial system , economics , politics , political science , law
This paper examines the relation between share pledging and cash holdings of Chinese A-share listed-firms. We find that during the years 2005 through 2015, the level of share pledging is negatively associated with cash holdings. We establish causality through a variety of econometric techniques, including a difference-in-differences approach based on a regulatory change that permits security companies to lend money to borrowers pledging their shares as collaterals. In addition, we find that the main effect is more prominent for financial constrained firms, and share pledging is associated with lower cash/investment-cash flow sensitivities and more cash dividend payouts. Overall, our findings indicate that share pledging can alleviate financial constraints of listed firms and reduce their tendencies of holding cash for precautionary motives.