Corporate Financial Portfolio and Distress Risk: Forewarned is Forearmed

Xuesheng Chen, Caixia Liu, Zhangxin (Frank) Liu, Yongkang (Stanley) Huang

Research output: Contribution to journalArticlepeer-review


This paper explores how corporate financial portfolio influences distress risk. We define distress risk as a dummy variable determined by whether firms need external subsidies to repay the interest payable. Spanning our analysis with 3,698 listed firms in China between 2007 and 2019, our findings are twofold. First, financial portfolio is associated with less distress risk. Second, the impact is more pronounced for firms with higher levels of liquidity of financial portfolio. We provide evidence that corporate financial portfolio prevents distress risk by reducing financial expenses and by improving investment income. Our findings post a challenge to the existing view in China that financial portfolio would harm corporate operation. The implication is that companies could allocate more liquid financial assets than illiquid ones to mitigate forewarned risk.

Original languageEnglish
Pages (from-to)1852-1864
Number of pages13
JournalEmerging Markets Finance and Trade
Issue number6
Early online date19 Dec 2022
Publication statusPublished - 2023


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