State‐ownership and corporate cash holding: Evidence from China

Abstract

AbstractWith a background of the recent reform of Chinese state‐owned enterprises (SOEs), how the state ownership affects the behaviour of corporations is an important research topic. Using a dataset of 2,908 listed nonfinancial firms in China from 2007 to 2017, we innovatively employ the Blinder–Oaxaca decomposition method to investigate the endowment and state‐ownership effects on corporate cash holdings. We find that the cash reserve level in SOEs is statistically significantly lower than that in non‐SOEs, whereas 78.98% of the difference can be explained by endowment differences, and only the remaining 21.02% is a distortion of state ownership. Moreover, the dynamic decomposition shows the state‐ownership effect on SOEs' cash holdings changes from positive to negative, meaning that credit discrimination has become more serious than soft budget constraints in recent years.