Product market liberalization and corporate cash holdings: Evidence from China

Ling Lin, Min Xiao, Rongrong Yao and Xiaoying Zhang

Pacific-Basin Finance Journal, 2024, vol. 86, issue C

Abstract: Exploiting China's sequential product market liberalization reform as a quasi-natural experiment, we find that market liberalization leads to a reduction in corporate cash holdings. This reduction is attributable to increased competition induced by market liberalization. The disciplinary effect of market liberalization, which curbs firms' opportunistic cash holdings, is more pronounced among firms located in regions with greater local government intervention and those with weaker corporate governance before market liberalization. Overall, we provide novel evidence of how product market liberalization in an emerging economy impacts firms' cash holding strategies.

Keywords: Product market liberalization; Corporate cash holdings; Market competition; Agency costs (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:86:y:2024:i:c:s0927538x24002208

DOI: 10.1016/j.pacfin.2024.102468

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