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The Dynamic Speed of Cash-Holding Adjustment in a Transition Economy: A New Approach and Evidence

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  • Liang Chang
  • Kebin Deng
  • Xuan Wang

Abstract

Using a new approach, we estimate the speed of cash-holding adjustment for a typical transitional economy by using Chinese listed firms’ samples over 1999–2011. First, we use model-averaging techniques to identify reliably important cash-holding determinants. Second, we conduct Monte Carlo simulation using the real finance data to evaluate appropriateness of the empirical estimator from a variety of dynamic estimation methods and suggest an optimized system of generalized method of moments (OPT-GMM) as an appropriate econometric approach for speed estimation. Finally, we get the speed of 46 percent, which is significantly lower than the contemporary speed in the United Kingdom and the United States.

Suggested Citation

  • Liang Chang & Kebin Deng & Xuan Wang, 2016. "The Dynamic Speed of Cash-Holding Adjustment in a Transition Economy: A New Approach and Evidence," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(2), pages 434-448, February.
    • Handle: RePEc:mes:emfitr:v:52:y:2016:i:2:p:434-448
    DOI: 10.1080/1540496X.2016.1110460
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    Cited by:

    1. Fryderyk Mirota & Natalia Nehrebecka, 2020. "Dynamika dostosowań transakcyjnej rezerwy płynności przedsiębiorstw do poziomu optymalnego," Bank i Kredyt, Narodowy Bank Polski, vol. 51(6), pages 613-638.
    2. Lee, Chien-Chiang & Wang, Chih-Wei, 2021. "Firms' cash reserve, financial constraint, and geopolitical risk," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).

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