Corporate Financial Portfolio and Distress Risk: Forewarned is Forearmed

Xuesheng Chen, Caixia Liu, Zhangxin (Frank) Liu and Yongkang (Stanley) Huang

Emerging Markets Finance and Trade, 2023, vol. 59, issue 6, 1852-1864

Abstract: This paper explores how corporate financial portfolio influences distress risk. We define distress risk as a dummy variable determined by whether firms need external subsidies to repay the interest payable. Spanning our analysis with 3,698 listed firms in China between 2007 and 2019, our findings are twofold. First, financial portfolio is associated with less distress risk. Second, the impact is more pronounced for firms with higher levels of liquidity of financial portfolio. We provide evidence that corporate financial portfolio prevents distress risk by reducing financial expenses and by improving investment income. Our findings post a challenge to the existing view in China that financial portfolio would harm corporate operation. The implication is that companies could allocate more liquid financial assets than illiquid ones to mitigate forewarned risk.

Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/1540496X.2022.2156281 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:59:y:2023:i:6:p:1852-1864

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/MREE20

DOI: 10.1080/1540496X.2022.2156281

Access Statistics for this article

More articles in Emerging Markets Finance and Trade from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().