Government control and the value of cash: evidence from listed firms in China

Xinyu Yu, Ping Wang

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In this paper, we investigate the impact of government control on investors’ valuation of cash held by listed firms in China. We find strong and robust evidence that government control leads to a lower value of cash. Further evidence suggests that this negative impact is associated with significant agency costs of political expropriation rather than low financial constraints of the soft-budget effect. Moreover, our extended analyses reveal that the negative impact of government control on the value of cash depends on regional institutional development. In particular, in regions with high institutional development, government control reduces the value of cash, while in areas that are less developed, this negative impact is attenuated to some extent. Overall, our findings shed new light and add a further dimension to the literature, broadening our understanding of the impact of government intervention on the listed firms under its control.
Original languageEnglish
Pages (from-to)1341-1369
JournalReview of Quantitative Finance and Accounting
Issue number4
Early online date30 Mar 2020
Publication statusE-pub ahead of print - 30 Mar 2020


  • China
  • Government control
  • Political expropriation
  • Value of cash


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