Cross shareholders and corporate cash holdings: Empirical evidence from Chinese listed companies

Cross shareholders have become a common phenomenon in capital markets, which increasingly draw the attention of scholars. This paper examines the effect of cross shareholders on corporate cash holdings in Chinese capital market and finds cross shareholders increase corporate cash holdings. Further mechanism analyses find suggestive evidence that this increase is correlated with reductions in overinvestment and improvements in total asset turnover. Additional results show the effect of cross shareholders has heterogeneous significance given the conditions of different external environment and firm characteristics. Moreover, cross shareholders reinforce the positive effect of cash holdings on firm productivity. Overall, this paper’s findings provide insight for understanding the role of cross shareholders in corporate cash holding decision in China.