Financial geographic density and corporate financial asset holdings: Evidence from China

Abstract

Using data from publicly listed A-share nonfinancial firms in China from 2011 to 2021, we define financial geographic density as the number of financial institutions within a certain radius around the firm, and investigate the impact of financial geographic density on corporate financial asset holdings. Our findings reveal that financial geographic density promotes corporate financial asset holdings by alleviating information asymmetry. The positive impact of financial geographic density on firms' financial asset investments is more pronounced for firms located in regions with a larger number of banking depository financial institutions, as well as those facing greater market competition. Meanwhile, we document that Fintech has little impact on the relationship between financial geographic density and corporate financial asset holdings. Furthermore, the rise of financial geographic density facilitates corporate innovation, thus supporting the precautionary motives of firms to hold financial assets.