Corporate governance and liquidity management

This paper constructs an integrative indicator system of corporate governance, investigates the relation of corporate governance and liquidity, and illustrates investors' valuation of cash holding. Corporate governance significantly effects cash holding and cash value. Well-governed firms tends to hold less cash, and the cash value of them is higher than that of poorly-governed firms, which means investors pay liquidity premium for good corporate governance. Our findings indicate that the development of governance mechanisms is quite important to modern firms' progress, which is valuable to comprehensive risk management of Chinese enterprises.