Share Pledging and Firm Cash Holdings: Evidence from Chinese A-share Listed Firms

Abstract

This paper examines the relation between share pledging and cash holdings of Chinese A-share listed-firms. We find that during the years 2005 through 2015, the level of share pledging is negatively associated with cash holdings. We establish causality through a variety of econometric techniques, including a difference-in-differences approach based on a regulatory change that permits security companies to lend money to borrowers pledging their shares as collaterals. In addition, we find that the main effect is more prominent for financial constrained firms, and share pledging is associated with lower cash/investment-cash flow sensitivities and more cash dividend payouts. Overall, our findings indicate that share pledging can alleviate financial constraints of listed firms and reduce their tendencies of holding cash for precautionary motives.

Research on the Influence of Listed Companies' Strategy on Financing Cost

“…Wang Huacheng et al [17] constructed corporate strategy metrics to measure six different aspects of corporate strategy, and found that firms adopting offensive strategies are more likely to have overinvestment phenomenon, and executive power, corporate cash holding level can affect the significant relationship between the two; Zhao Huan [18] studied China's A-share listed companies, and found that China's listed companies have different degrees of financing constraints, and the degree of aggressive corporate strategy is significantly positively correlated with financing constraints. Constraints, but institutional investors can reduce this relationship; Chu Youwei [19] examines the impact of strategy on financial asset allocation using data from non-financial listed companies, and the results show that firms adopting aggressive strategies have higher levels of financial asset allocation; Xu Jian et al [20] find that a firm's strategy can affect cash distribution decisions.…”