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Speculative Motive for Holding Cash and High-Interest Entrusted Loans

33 Pages Posted: 25 Aug 2015  

Yan Yu

Beijing Technology and Business University - Business School; Beijing Technology and Business University - CICSOAA

Yi-Tsung Lee

Peking University - Guanghua School of Management

Robert C.W. Fok

University of Wisconsin - Parkside - School of Business and Technology

Date Written: May 1, 2015

Abstract

We empirically tested the speculative motive for holding cash using high-interest entrusted loans in China as an example of speculative activity. A significant and positive relation exists between high-interest entrusted loans and last period cash holding; supporting the speculative motive for holding cash. In addition, the likelihood of engaging in speculative entrusted loans decreases with the percentage of independent directors and the percentage of stock ownership by institutional investors. On the other hand, Central state-owned enterprises (SOEs) and firms in profitable industry are less likely to speculate with high-interest entrusted loans. Also, firms are more likely to lend high-interest entrusted loans during periods of loose monetary policy. These findings indicate that the speculative motive for holding cash is weakened for firms with stronger corporate governance and better earning ability. Also, monetary policy and the regulatory nature of state-owned enterprise influence the decision of providing high-interest entrusted loans.

Keywords: Speculative Motive, Cash Holding, High-Interest Entrusted Loans

JEL Classification: G31; G34; G38

Suggested Citation

Yu, Yan and Lee, Yi-Tsung and Fok, Robert C.W., Speculative Motive for Holding Cash and High-Interest Entrusted Loans (May 1, 2015). Available at SSRN: https://ssrn.com/abstract=2649970 or http://dx.doi.org/10.2139/ssrn.2649970

Yan Yu (Contact Author)

Beijing Technology and Business University - Business School ( email )

11/33, Fucheng Road
Beijing, 102488
China

Beijing Technology and Business University - CICSOAA ( email )

No. 11/33, Fucheng Road, Haidian District
Liangxiang
Beijing, 102488
China

Yi-Tsung Lee

Peking University - Guanghua School of Management ( email )

Office 336, Guanghua Building 2
Beijing, Beijing 100871
China
(86-10) 6275 5742 (Phone)
(86-10) 6275 5742 (Fax)

Robert C.W. Fok

University of Wisconsin - Parkside - School of Business and Technology ( email )

Kenosha, WI 53141-2000

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