Marketization and corporate cash holdings: Role of financial constraint alleviation

This study examines the relationship between marketization and corporate cash holdings. Using a sample of the Chinese stock market spanning from 2007 to 2020, our empirical results show that marketization negatively affects corporate cash holdings. This effect is more pronounced for firms in the eastern and central regions of China and Chinese Growth Enterprise Market (GEM). Additionally, our study finds that investment opportunities and state-owned features of firms play moderating roles in the effect of marketization on firms' cash holdings. State-owned enterprises (SOEs) are less affected by marketization; however, the more investment opportunities a firm has, the greater is the negative impact of marketization on its cash holdings. Finally, we find that marketization can affect corporate cash holdings through firms' financing constraints. These results are robust to various tests and alternative explanations.