Corporate Cash Holdings and Financial Crisis: An Empirical Study of Chinese Companies

This study investigates the determinants of cash holdings in the period 1999–2009 in China. The sample period covers the time of financial crisis. The focus in this study is on how firm characteristics, especially financial constraints and investment options, are associated with cash holdings. The findings show that:Compared to “normal” times, Chinese firms tend to increase their cash holdings during the financial crisis.In general, the firms with more financial constrains, and with more investment opportunities, tend to hold more cash.Further, the firms with lower leverage, less net working capital (NWC), and lower capital expenditures, are more likely to increase their cash holdings as well. Likewise, those firms tend to save more cash from cash flow.The evidence suggests that Chinese firms are precautious with their cash holdings. © 2011, Eurasia Business and Economics Society.