We examine the impact of financial liberalization on corporate cash holdings and the value of cash holdings. We find that corporate cash holdings decrease significantly with the level of liberalization, and the market value of cash holdings is lower for firms in countries with higher level of financial liberalization. These effects are more significant in countries with better investor protection legal system. The impact of financial liberalization on corporate cash policy is robust to alternative measures of financial liberalization, to alternative measure of investor protection and to firms’ financial constraint. Using the level of financial liberalization as an exogenous macro shock, we examine the motives of cash holdings from the perspectives of both capital demands and supplies. 

Keywords: Financial Liberalization; Cash Holdings; Value of Cash Holdings; Investor Protection; Financial Constraint
JEL: G15, G32, G38