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Do State Ownership and Political Connections Affect Precautionary Cash Holdings for Customer Concentration? Evidence from China

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  • Shaorou Hu
  • Ming Liu
  • Nan Liu
  • Xialin Guo

Abstract

This paper examines whether state ownership and political connections affect the relationship between customer concentration and cash holdings for Chinese listed manufacturing firms. We show that non‐state‐owned firms, but not state‐owned firms, hold more cash as customer concentration increases. In addition, political connections weaken the positive effect of customer concentration on non‐state‐owned firms’ cash holdings. Our supplemental analyses further show that for non‐state‐owned firms with limited access to finance—for instance, firms with low analyst following, low institutional ownership, or low government subsidies—the effects of political connections on weakening the positive association between customer concentration and cash holdings are more pronounced. Additional robustness tests support our arguments.

Suggested Citation

  • Shaorou Hu & Ming Liu & Nan Liu & Xialin Guo, 2024. "Do State Ownership and Political Connections Affect Precautionary Cash Holdings for Customer Concentration? Evidence from China," Abacus, Accounting Foundation, University of Sydney, vol. 60(2), pages 305-337, June.
    • Handle: RePEc:bla:abacus:v:60:y:2024:i:2:p:305-337
    DOI: 10.1111/abac.12303
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