The Determinants of Target Cash Holdings and Adjustment Speeds: An Empirical Analysis of Chinese Firms

32 Pages Posted: 11 Jan 2012

See all articles by Lakshman Alles

Lakshman Alles

Curtin University of Technology - Department of Finance

Yujun Lian

Sun Yat-sen University

Claire Y Xu

Zhejiang Gongshang University (ZJGSU)

Date Written: January 9, 2012

Abstract

This study examines the determinants of target cash reserves among publicly listed Chinese firms in the 1998 to 2009 period, and how actual levels of cash holdings adjust towards target cash reserves. The consistency of the determinants of cash reserves with the static trade-off, pecking order and the free cash flow theories, in so far as they relate to cash holdings of firms, are also evaluated. Results of the study support the existence of target cash reserves in Chinese firms, and that they are a function of a range of firm specific characteristics that include leverage, cash flow, dividend payout, liquidity, tangibility, investment opportunities, managerial ownership, and ownership concentration. Results further suggest that contrary to expectations, the adjustment speed towards target levels are quite rapid and similar to the adjustment speeds observed in longer established markets.

Keywords: Target cash holdings, Chinese firms, Adjustment speeds

JEL Classification: G15, G32, G35

Suggested Citation

Alles, Lakshman and Lian, Yujun and Xu, Claire Y, The Determinants of Target Cash Holdings and Adjustment Speeds: An Empirical Analysis of Chinese Firms (January 9, 2012). 2012 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=1981818 or http://dx.doi.org/10.2139/ssrn.1981818

Lakshman Alles (Contact Author)

Curtin University of Technology - Department of Finance ( email )

Bentley 6102 WA
Australia

Yujun Lian

Sun Yat-sen University ( email )

135 Xin Gang Xi Road
Guangzhou, Guangdong Province
China
86-20-84110648 (Phone)

HOME PAGE: http://www.lingnan.net/intranet/teachinfo/dispuser.asp?name=lianyj

Claire Y Xu

Zhejiang Gongshang University (ZJGSU) ( email )

Zhejiang
China

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