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The “Reservoir” effect of financial asset allocation during crises: evidence from corporate innovation sustainability in China

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  • He, Meng
  • Bai, Xuelian
  • Liu, Lu

Abstract

This study leverages the COVID-19 pandemic as an exogenous shock to examine whether corporate financial asset allocation acts as a “reservoir” during crises, thereby curbing the decline in firms’ innovation investments. Our findings show that financial assets serve as a “reservoir” by alleviating firms’ cash flow pressures. This effect is more pronounced in firms with lower financial flexibility and smaller sizes. Further analysis indicates that the “reservoir” effect is driven mainly by highly liquid financial assets, and is contingent on effective corporate governance.

Suggested Citation

  • He, Meng & Bai, Xuelian & Liu, Lu, 2026. "The “Reservoir” effect of financial asset allocation during crises: evidence from corporate innovation sustainability in China," Finance Research Letters, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:finlet:v:102:y:2026:i:c:s1544612326006410
    DOI: 10.1016/j.frl.2026.110112
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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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