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The importance of speed to corporate financial asset holdings: Evidence from high-speed rail

Author

Listed:
  • Liu, Xiaoying
  • Wang, Yujing
  • Li, Meng
  • Gao, Haoyu

Abstract

Exploiting the staggered expansion of China's high-speed rail (HSR) network, we study the relationship between HSR connection and firms' financial asset holdings. The difference-in-difference estimation shows that firms connected to HSR network experience a drop in the financial asset holdings. By highlighting firms' precautionary motivation and substitution motivation, our mechanism analyses reveal that HSR connection not only significantly mitigates financial constraints for firms, but also enhances investment opportunities and results in better profits. The effect of HSR connection is more pronounced for firms with greater reliance on external financing, and those with more promising prospects that value their main business. Our results provide empirical validation for the economic rationale underlying firm capital distribution and financial asset holding theories.

Suggested Citation

  • Liu, Xiaoying & Wang, Yujing & Li, Meng & Gao, Haoyu, 2024. "The importance of speed to corporate financial asset holdings: Evidence from high-speed rail," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:pacfin:v:85:y:2024:i:c:s0927538x24000611
    DOI: 10.1016/j.pacfin.2024.102310
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    More about this item

    Keywords

    High-speed rail; Financial asset holdings; Precautionary motivation; Substitution motivation;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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