How does stock liquidity affect corporate cash holdings in Japan?: A pre-registered report

Ryosuke Fujitani, Kiyonori Iwata and Yukihiro Yasuda

Pacific-Basin Finance Journal, 2024, vol. 83, issue C

Abstract: This pre-registered report outlines a comprehensive plan for a paper aimed at examining the positive relationship between stock liquidity and corporate cash holdings within the context of Japan. This study aims to offer a novel explanation. Our explanation is rooted in the “dark side” of stock liquidity, suggesting that liquidity could exacerbate corporate financial constraints by increasing the stock price crash risk. If managers expect liquidity to cause the surge of the cost of external capital, they will have a precautionary motive to retain cash. We plan to examine whether stock liquidity positively affects corporate cash holdings in Japan. Furthermore, we plan to isolate our hypothesis from other possible explanations by assessing whether the positive liquidity-cash relationship is more pronounced in firms experiencing overvaluation.

Keywords: Corporate cash holding; Stock liquidity; Stock price crash risk (search for similar items in EconPapers)
JEL-codes: G32 G35 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:83:y:2024:i:c:s0927538x23002767

DOI: 10.1016/j.pacfin.2023.102205

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