Work

How does stock liquidity affect corporate cash holdings in Japan?: A pre-registered study

Year: 2025

Type: article

Abstract: In this pre-registration study, we revisit the liquidity–cash puzzle : the positive relationship between stock liquidity and corporate cash holdings. To achieve this, we implement the empirical analysis outlined in a pre-registered report (Fujitani et al., 2024). We propose and provide evidence for a new precautionary motive that explains why firms with higher stock liquidity accumulate more cash in Japan. We argue that managers hold cash as a precautionary buffer against stock price crash risks intensified by high stock liquidity. Consistent with this hypothesis, we find that the positive relationship between stock liquidity and cash holdings is more pronounced among firms that are overvalued or financially constrained, that is, those with higher ex-ante crash risk.

Source: Pacific-Basin Finance Journal

DOI: 10.1016/j.pacfin.2025.102969

Authors: Ryosuke Fujitani, Kiyonori Iwata, Yukihiro Yasuda

Institutions: Hitotsubashi University, Tokyo Keizai University

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,090

Funder: Japan Society for the Promotion of Science