 A tale of two Us: Corporate leverage and financial asset allocation in ChinaSichao Ma, Ji Shen, Fanzhi Wang and Wanting Wu International Review of Financial Analysis, 2022, vol. 83, issue C Abstract: Firms choose to make liquid and illiquid financial investments due to different motives and, therefore, how they relate to corporate leverage may exhibit different non-linear shapes. On the one hand, firms hold liquid financial assets to hedge against external uncertainty and liquidity shocks based on the “precautionary saving” motive. This implies a positive U-shaped relationship between the leverage ratio and liquid financial asset allocation. On the other hand, firms allocate illiquid financial assets due to the “investment substitution” motive to earn high yields. This leads to an inverted U-shaped relationship between the leverage ratio and illiquid financial asset holdings. Using financial data of Chinese listed firms from 2007 to 2017, we verify the above theoretical predictions. Further analysis finds factors such as internal and external risks, financing environment, and total factor productivity to be important determinants of corporate financial asset allocation. Keywords: Financial asset allocation; Leverage ratio; Investment behavior (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:83:y:2022:i:c:s1057521922002186 DOI: 10.1016/j.irfa.2022.102260 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.