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.