Digital Technologies, Investor Sentiment, Limits to Arbitrage and Value of Firm Cash Holdings in China's A Stock Market is Good

Abstract

Cash is a firm’s most liquid asset and this asset can add firm value by mitigating firm financial constraints, reducing debt default risk and opportunity costs. But the positive and negative asset pricing effect of cash holdings are related to digital technologies, sustainable performance and investors’ sentiment and limits to arbitrage. The paper finds the digital technologies and sustainable performance, both are negatively associated with the value of cash holding. The current study also scrutinized that firm’s cash holding value appears to be positive in China’s A stock market, and this asset pricing effect is more significant in periods when investor sentiment is high and in firms confronting high level of limits to arbitrage. This research provides evidences on the asset pricing effect of firm cash holdings and on how inefficient capital market affects this asset pricing effect. The findings of this research are useful for firms) improving cash management and have implications for supervising department to improve stock market efficiency.