The Dynamic Speed of Cash-Holding Adjustment in a Transition Economy: A New Approach and Evidence

Liang Chang, Kebin Deng and Xuan Wang

Emerging Markets Finance and Trade, 2016, vol. 52, issue 2, 434-448

Abstract: Using a new approach, we estimate the speed of cash-holding adjustment for a typical transitional economy by using Chinese listed firms’ samples over 1999–2011. First, we use model-averaging techniques to identify reliably important cash-holding determinants. Second, we conduct Monte Carlo simulation using the real finance data to evaluate appropriateness of the empirical estimator from a variety of dynamic estimation methods and suggest an optimized system of generalized method of moments (OPT-GMM) as an appropriate econometric approach for speed estimation. Finally, we get the speed of 46 percent, which is significantly lower than the contemporary speed in the United Kingdom and the United States.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:52:y:2016:i:2:p:434-448

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DOI: 10.1080/1540496X.2016.1110460

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