This paper investigates the cash flow
sensitivity of cash of Chinese listed firms (WRDS Database) during 2009–2017.
By using the two-step system GMM method, this paper shows the following
findings: First, in general, cash flow sensitivity of cash is negative for
Chinese listed firms. Second, financial constraint, firm size and the paying of
dividends can affect the cash flow sensitivity of cash; this sensitivity tends
to be much stronger when enterprises face stronger financial constraints,
smaller firm size, and no cash paying of dividends. Third, the cash flow
sensitivity of cash is negative (positive) when the firm has a positive
(negative) cash flow. Finally, net working capital plays a smoothing role on
cash holdings, and sales of the fixed asset also affect cash flow sensitivity
of cash positively.
JEL classification numbers: G31, G32,
Keywords: cashflow sensitivity of cash, financial constraint, working
capital, sales of fixed asset