The importance of speed to corporate financial asset holdings: Evidence from high-speed rail

Exploiting the staggered expansion of China's high-speed rail (HSR) network, we study the relationship between HSR connection and firms' financial asset holdings. The difference-indifference estimation shows that firms connected to HSR network experience a drop in the financial asset holdings. By highlighting firms' precautionary motivation and substitution motivation, our mechanism analyses reveal that HSR connection not only significantly mitigates financial constraints for firms, but also enhances investment opportunities and results in better profits. The effect of HSR connection is more pronounced for firms with greater reliance on external financing, and those with more promising prospects that value their main business. Our results provide empirical validation for the economic rationale underlying firm capital distribution and financial asset holding theories.