The analysis of cash flow sensitivity of cash among Chinese listed firms: Under the perspective of financial constraint

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.