The influence of institutional fragility on corporate cash holdings: evidence from China

Xinli Li, Xiaodong Li, Jun Cheng, Jiaying Li and Zhenyang Zhao

Economic Research-Ekonomska Istraživanja, 2023, vol. 36, issue 1, 191-208

Abstract: This study examines the relationship between institutional fragility and corporate cash holdings. Using data from China between 2004 and 2017, we find that institutional fragility is associated with increased corporate cash holdings. The relationship is stronger for non-state-owned enterprises and stronger when firms have no relationship with banks. Furthermore, we find that institutional fragility reduces current investment opportunities, leading to an increase in corporate cash holdings. Investment opportunities play an intermediary effect; hence, institutional fragility affects corporate cash holdings.

Date: 2023
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DOI: 10.1080/1331677X.2022.2073249

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