Financial constraints and corporate bankruptcy risks in China: The buffer role of cash holdings.
| Title: | Financial constraints and corporate bankruptcy risks in China: The buffer role of cash holdings. |
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| Authors: | Luu QT; Faculty of Finance, Ho Chi Minh University of Banking, Ho Chi Minh, Vietnam.; Nguyen HTT; School of Finance and International Business, Saxion University of Applied Sciences, Netherlands.; Tran TND; Faculty of Finance and Banking, Ho Chi Minh City Open University, Ho Chi Minh City, Vietnam.; Ho TT; Faculty of Finance and Banking, Ton Duc Thang University, Ho Chi Minh City, Vietnam. |
| Source: | PloS one [PLoS One] 2026 Jan 27; Vol. 21 (1), pp. e0341114. Date of Electronic Publication: 2026 Jan 27 (Print Publication: 2026). |
| Publication Type: | Journal Article |
| Language: | English |
| Journal Info: | Publisher: Public Library of Science Country of Publication: United States NLM ID: 101285081 Publication Model: eCollection Cited Medium: Internet ISSN: 1932-6203 (Electronic) Linking ISSN: 19326203 NLM ISO Abbreviation: PLoS One Subsets: MEDLINE |
| Imprint Name(s): | Original Publication: San Francisco, CA : Public Library of Science |
| MeSH Terms: | Bankruptcy*/economics ; Commerce*/economics ; Financial Management*; China ; Humans ; Investments |
| Abstract: | Corporate bankruptcy risk in China is increasingly driven by structural credit discrimination and a systemic financial mismatch. This study investigates the impact of cash holdings and financial constraints on corporate bankruptcy risk in China. We employ the Two-step system Generalized Method of Moments (GMM) to analyze an unbalanced panel of 32,081 annual observations from listed firms in China, spanning the period from 2010 to 2023. Our findings indicate that higher financial constraints increase bankruptcy risk, as a one-point rise in the SA index reduces the Z-score by 4.26 points, supporting Market Timing Theory. Conversely, cash holdings serve as a powerful protective buffer; a 1% increase in cash holdings raises the Z-score by 0.37 points, supporting the Precautionary Savings and Trade-off theories. Furthermore, our results highlight the buffer role of cash holdings for financially constrained firms, where higher cash reserves mitigate the adverse effects of financial constraints on bankruptcy risk. Our main findings remain robust after employing alternative bankruptcy risk proxies, firm size-based, and exchange subsamples. These findings provide valuable insights for financial managers and policymakers, highlighting the importance of effective liquidity management and credit accessibility in mitigating corporate distress in emerging markets.; (Copyright: © 2026 Luu et al. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.) |
| Competing Interests: | The authors have declared that no competing interests exist. |
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| Entry Date(s): | Date Created: 20260127 Date Completed: 20260127 Latest Revision: 20260131 |
| Update Code: | 20260131 |
| PubMed Central ID: | PMC12843545 |
| DOI: | 10.1371/journal.pone.0341114 |
| PMID: | 41592078 |
| Database: | MEDLINE |
Journal Article