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Financing Constraints and Liquidity Management

LIAN Yujun PENG Fangping SU Zhi  
The paper investigates both the static and dynamic effects of financing constraint on the liquidity management of the listed firms.Theoretical analysis shows that,the value of multi-period investment option increases with the liquidity reserves when the firm faces financing constraints,which imply that the firms with financing constraints should maintain higher liquidity assets and implement more effective liquidity policy.The empirical results confirm above predictions.The authors also find that,(1)The financing constraints firms show stronger cash-cash flow sensitivity,as they would reserve more cash or cash equivalents from cash flow for the preventive or speculative motives.(2)The financing constraints firms are more active and cautious in managing liquidity assets,as their adjusting speed to the target cash holding is much higher than that of non-financing constraints firm.
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