A Comparative Study Of Cash Holdings Of Different Growth Level Of Listed Companies In China

Cash is the most liquid assets in the company, it has universal acceptability, can immediately and effectively be used to purchase goods and services or repayment of the debt. At the same time, it is the worst profitable assets. It is a very important realistic problem for managers to how to implement and carry out the management principles of keeping cash reserves in a moderate, timely adjustment and safe condition. Meanwhile, as a competitive capacity of enterprise, growth has been the goal enterprises striving for and gets continuous attentions and research in the theoretical circle. In the perspective of growth, this paper mainly makes an empirical analysis on cash holdings for listed companies in different growth stage, which includes three aspects on influencing factors, dynamic adjustment and value effect of cash holdings, and forms four research topics on the basis of theoretical analysis and literature review.The conclusions and contributions of this paper are as follows:1. To make a comparative study on cash holdings in listed companies in our country in the perspective of growth. The existing literature mainly make some empirical research about the current situation, motivations and influence factors of cash holdings on the aspects of country, industry and environment, and make less intensive research based on a specific feature. By comparison, this paper finds that the influencing factors, dynamic adjustment speed and form, marginal market value and shareholder value of cash holdings are different for different growing companies, which enriches the connotation of firm growth theory from a new angle, and is conducive for growing companies to better manage and use cash.2. Different from the existing literature which adopt an individual indicator such as sales revenue, profitability and Tobin Q as the determinant of enterprise growth, this article selects 435 listed companies in 2007-2012 fiscal years and obtains 2610 effective samples, builds a growth evaluation model of listed companies based on principal component analysis method, which selects 12 financial indicators, then gets the average growth score of listed companies and ranks sample companies into high-growth and low-growth listed companies so as to make the research foundation and results more rigorous and credible.3. In the study of the influencing factors of cash holdings, this paper finds that the firm’s financial characteristics are the important factors affecting the level of cash holdings of listed companies, which plays a key role. For all sample companies, cash flow, cash substitutes and capital investment expenditure have a positive relation with the level of cash reserves and debt maturity structure has a negative correlation, and the correlation is significant. As for firm size, profitability have a significant relation with the level of cash holdings in samples in the low-growth listed companies, but which is not significant in the high-growth listed companies; On the contrary, financial leverage, cash dividend payment exert a significant influence on high-growth listed firm’s cash holdings. In addition, this paper also analyses which influencing factors are more pivotal. Financial leverage and debt maturity structure exert a greater impact on the level of cash reserves for high-growth listed companies, and cash substitutes, profitability and firm size have a greater influence on the cash holdings for low-growth listed companies.4. Through a multiple stepwise regression analysis based on financial characteristics affecting the level of cash reserves, this paper formulates the target cash balance, which is compared with the actual cash holdings, and makes a comparative analysis on the influencing factors of the excess cash levels from the perspective of corporate governance. The empirical study finds that excess cash levels don’t have a statistically significant relation with corporate governance variables. In the high-growth listed companies, only the check and balance of equity, proportion of controlling shareholders of foreign investors have a significantly negative relation with the excess cash levels. In the low-growth listed companies, only proportion of management ownership has a significantly negative relation with the excess cash levels. At the same time, the whole explanation ability of the model is very weak, which suggests that corporate governance does not directly exert an influence on the excess cash levels.5. A target cash balance for listed companies does exist, but the adjustment speed of cash holdings is slow, with a special phenomenon of adjustment in continuous single direction. Based on Opler and Ozkan models, this paper builds two cash holdings dynamic adjustment regression model. Using the method of OLS, we find that target cash balance does exist for sample companies. The dynamic adjustment speed of cash holdings for high-growth listed companies is 0.356, faster than low-growth listed companies (0.329), but compared with foreign companies in a more developed capital market, the adjustment speed is slower in China, which shows the listed companies in China face a higher financing cost, the capital allocation is not enough timely and effective. On the adjustment form, there is a certain similarity between the sample companies, the actual cash balance is always higher than the optimal level, with a special phenomenon of adjustment in continuous single direction.6. There is a significant discount of the marginal shareholder value of cash holdings for listed companies in China, far below the valuations of company cash holdings in the developed countries. The average marginal shareholder value of one yuan is about 0.293 yuan for high-growth listed companies, about 0.566 yuan for low-growth listed companies, while the average marginal shareholder value of one dollar in the developed countries is about 0.6 to 0.9 dollar. Based on the analysis in the perspective of financing constraints, this paper finds that the fixed assets investment expenditure in low-growth listed companies more relies on existing cash reserves, rather than the internal cash flow, and the level of cash holdings has a more significant role in promoting fixed asset investment expenditure, compared with the samples of high-growth listed companies, which also indirectly confirms that low-growth listed companies face a more severe financing constraint, cash reserves have a more significant marginal contribution to the firm value and shareholders’wealth.The goal of the empirical analysis on cash holdings of listed companies in China in the perspective of growth is expected to further enrich the research achievements of cash holdings under the background of China’s special economic and political system, strengthen cash holdings theory guiding significance on firm growth. In practice, the research conclusions of empirical analysis on cash holdings for different growing listed companies, can provide a new perspective in the process of decision-making of stakeholders including shareholders, managers, creditors and government regulators in a certain extent, can contribute to the continuous improvement of corporate governance system in China, can let the firm more reasonably hold and use cash in different growth stage.