When do corporate diversification increase financial liquidity?

Different from the existing literatures mainly focus on the value effect of corporate diversification, our paper analysis and examines how corporate diversification affect financial liquidity, and wheher there exists difference under different property condition. The results show that, corporate diversification decrease cash holdigns in general, which indicates that the diversiciation strategy and cash holding policy are complementary in creating financial liquidity, there is liquidity effect of diversification. However corporate diversification would not increase the marginal value of cash holdings, which indicates the liquidity effect of diversification is not effective. When consider the effect of property, we find that diversification decrease cash holdigns significantly, while increase the marginlal value of cash holdigns significantly when financial is constranined and corporate governance is good in non-state-owned corporations. But we find the opposite results in state-owned corporations, Which indicates the liquidity effect of diversification is effective relatively in non-state-owned corporations. The contribution of our paper is filled the blank of literaure in the diversification's liquidity effect based on China evidence, which will enrich and expand the study on the relationship between diversification and financial policy.