Abstract
We examine the impact of a government-led logistics standardization reform on firm-level cash management in China. Facing high logistics costs, the Chinese government began a logistics service standardization (LSS) reform in 2014. Our findings suggest that firms in LSS cities hold less cash than those in non-LSS cities. Most important, these LSS firms have a higher market value of cash holdings than non-LSS firms. The findings are robust to alternative metrics of cash holding and different subsamples. Furthermore, we use a propensity score matching approach to mitigate potential endogeneity, run placebo tests and conduct Heckman two-stage analysis. Additional analyses suggest the following: (1) the impact of LSS reform on cash holdings lasts at least 2 years, (2) LSS firms experience better cash management efficiency than non-LSS firms, (3) the impact of LSS reform is more pronounced for state-owned firms (SOEs) than non-SOEs, and (4) LSS firms experience better corporate investment efficiency in terms of less overinvestment.
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