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How Do Firms with Financial Constraints Manage Liquidity?

Author

Listed:
  • Zhang Fan
  • Zhang Aishu
  • Liang Tao

Abstract

Firms with financial constraints need to maintain cash and cash equivalent at an optimal level. Lack of liquid assets sends a negative signal to the market, leading to a potential collapse of the stock prices. The inefficient Chinese financial market makes it more costly for firms to raise capital in China. Thus, how do firms with financial constraints management liquidity in China? We find that Chinese listed firms with financial constraints tend to manage liquidity more actively and carefully. They are more likely to adjust the cash holdings sooner when it deviates from the benchmark. Those firms tend to retain more cash for the future investment options.

Suggested Citation

  • Zhang Fan & Zhang Aishu & Liang Tao, 2015. "How Do Firms with Financial Constraints Manage Liquidity?," International Journal of Financial Markets, Research Academy of Social Sciences, vol. 1(1), pages 18-21.
    • Handle: RePEc:rss:jnljfm:v1i1p3
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