Do cash flow imbalances facilitate leverage adjustments of Chinese listed firms? Evidence from a dynamic panel threshold model |
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| Institution: | 1. School of Economics, Huazhong University of Science and Technology, Wuhan, 430074, China;2. Development and Reform Bureau, Management Committee of East Lake High-tech Zone, Wuhan, 430074, China;1. University of Alcalá, Spain;2. University of Valladolid, Spain;1. University of Tunis, High Institute of Management, Tunis, Tunisia;2. College of Business Administration, AlBaha University, Saudi Arabia;3. Univ. Manouba, ESCT, RIM RAF, UR13ES56, Tunisia;4. University of Jeddah, College of Business, Department of Accounting, Jeddah, Saudi Arabia;5. University of Tunis, ISG, GEF-2A Lab, Tunis, Tunisia;6. University of Manouba, ESC, Manouba, Tunisia;1. European University at St. Petersburg, 6/1A Gagarinskaya Str., St. Petersburg, 191187, Russia;2. Department of Economics, Feliciano School of Business, Montclair State University, Montclair, NJ, USA;1. Universidad Autónoma de Madrid, Spain;2. Universidad Complutense de Madrid, Spain;1. Department of Humanities and Social Sciences, Indian Institute of Technology Kharagpur, India;2. Indira Gandhi Institute of Development Research, Mumbai, India |
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| Abstract: | This paper investigates the asymmetric impact of cash flow on firms’ leverage adjustments. We use a dynamic panel threshold model and estimate it with a newly-developed first-difference GMM approach, which allows endogeneity in both threshold variable and regressors. Employing data of 1054 Chinese listed firms during 2004–2016, we show that Chinese listed firms have leverage targets, towards which they adjust at an average speed of 25.9%. Moreover, firms with larger absolute cash flow adjust towards their leverage targets significantly faster than those with smaller absolute cash flow. This finding is robust to a post-financial crisis sample period, alternative measures of leverage and cash flow, and the incorporation of an additional control variable. We find evidence that cash flow imbalances facilitate leverage adjustments by reducing adjustment costs, and Chinese listed firms rely more on debt issues. These findings provide new insights on firms’ leverage adjustment and cash flow management. |
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| Keywords: | Cash flow Speed of adjustment Target leverage Dynamic panel threshold model C33 G30 G32 |
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