I’ve flagged work before that highlights some of the dis-benefits for towns connected to China’s High Speed Rail (HSR) network and the paper today is in a similar vein.
Yao Ge (et. al.) from the School of Management of the Xiamen University has taken a look at how an HSR connection affects firms near and in towns newly connected and how they run balance sheets subsequently.
From an analysis of all A-share listed companies from 2007~2018 they found a marked trend of rising corporate cash levels associated with HSR connection. From an investor’s perspective this is not a good result.
What’s going on? As in the previous work that highlighted some bad outcomes of HSR connection this piece finds the same issue of what should, in theory, be a ‘helping-hand’ turning out to be a ‘grabbing-hand’.
The researchers speculate it’s increased mobility of capital and labor facilitated by the HSR that causes firms to increase precautionary war-chests. Scarcity of these inputs is facilitated by easier migration options and firms respond accordingly.
Consistent with the hypothesis effects are most pronounced in non-state-owned firms located in ‘peripheral’ cities and/or based in less developed regions.
You can read the paper in full via the following link High-Speed Rail Network and Corporate Cash Holdings.
Happy Sunday.