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Do business groups affect corporate cash holdings? Evidence from a transition economy

Research output: Contribution to journalArticle

Original languageEnglish
Pages (from-to)1-24
Number of pages24
JournalChina Journal of Accounting Research
Issue number1
Early online date19 Jan 2016
DateAccepted/In press - 28 Oct 2015
DateE-pub ahead of print - 19 Jan 2016
DatePublished (current) - 1 Mar 2016


We examine whether business groups’ influence on cash holdings depends on ownership. Group affiliation can increase firms’ agency costs or benefit firms by providing an internal capital market, especially in transition economies characterized by weak investor protection and difficult external capital acquisition. A hand-collected dataset of Chinese firms reveals that group affiliation decreases cash holdings, alleviating the free-cash-flow problem of agency costs. State ownership and control of listed firms moderate this benefit, which is more pronounced when the financial market is less liquid. Group affiliation facilitates related-party transactions, increases debt capacity and decreases investment-cash-flow sensitivity and overinvestment. In transitional economies, privately controlled firms are more likely to benefit from group affiliation than state-controlled firms propped up by the government.

    Research areas

  • Business groups, Cash Holdings, China, State ownership

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    Licence: CC BY-NC-ND


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