Stock Liquidity and Cash Holdings: Evidence from Stock Buybacks

Abstract

In view of the traditional view that stock liquidity reduces the cash holding level of listed companies by alleviating financing constraints and restraining agency costs, this paper starts from the company's stock repurchase motivation and finds that high stock liquidity may strengthen the company's stock repurchase motivation and thus promote the company to improve its cash holding level. Based on the empirical evidence of Chinese A-share listed companies from 2011 to 2021, it is shown that stock liquidity can significantly increase the company's cash holdings, and through the relaxation of the buyback policy in 2018 as an exogenous shock, it is verified by the differential difference method that after the relaxation of the policy, the company with high stock liquidity will increase more cash holdings than the company with low stock liquidity. Further research shows that the property rights of listed companies and the heterogeneity of the characteristics of senior executives will affect the promoting effect of stock liquidity on cash holdings.