Abstract Financial slack policy concerns both cash holding and debt capacity decisions. Using a large sample of Chinese listed companies over the period of 1998-2007, this paper provides evidence about the influence of financial slack on the firms performance. Our results show that financial slack positively influences the performance of firms, and financing constraints enhance the value of financial slack and positively affect the financial slack-performance sensitivity,while the negative influence of agency costs on financial slack-performance sensitivity is only found in the companies without financing constraints.
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Received: 12 July 2009
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