Goverment Intervention, Ultimate Ownership And Cash Holding Policy

Cash holding policy is always an important research field for corporate finance, many scholars attempt to explain the motives and influence factors for corporate cash policy. The available literature convincingly reveals the existing transactions motive, precautionary motive and self-interest motive for corporate cash holding, and moreover, the empirical data also intensively support the impact of some internal and external influencing factors on corporate cash policy, such as corporate financial characteristics, external financing constraints, investor protection system, etc. Since China is in transition, government intervention is at all levels in different provinces and cities around our country and such government intervention have a significant impact on corporate business behavior. The impact of some factors including investor protection system, government control and legal environment on corporate cash policy has been studied in the existing literature, and however, government intervention acts as an important part of external system environment, its impact on corporate cash policy fails to attract enough attention from scholars. But in fact, Chinese market is an emerging capital market, government intervention on corporate business behavior is very common in this market, and besides, a lot of state-owned enterprises exist in our country, in which the senior executives in these enterprises are not only the managers of enterprises but also government officials, and even many managers in a lot of large and medium state-owned enterprises are directly appointed by State-owned Assets Supervision and Administration Commission (SASAC), the countless ties between enterprise to government are bound to affect corporate business behavior, and meanwhile, the market system in China is not sound enough, actually local protectionism still exists in some regions and areas, all of these factors inevitably influence corporate business strategy. Thus, it is worth studying whether government intervention is an influencing factor for cash holding policy as an important part of system factor as well as its influence degree and influence mechanism, while the research about the impact of government intervention on corporate cash policy is rare in the existing literature. In addition, because the impact of ultimate ownership system on corporate cash policy will be affected by government intervention, which will increase the policy burden of over-investment by state-owned enterprises by making use of excessive cash holdings in corporate. For this, a systematic study on government intervention and corporate cash policy in China with the combination of ultimate ownership system is carried out in this paper.The research objective of this paper is to carry out theoretical and empirical study about the influence of government intervention and ultimate ownership system on the level of cash holding, the value of cash holding and the speed of adjustment as well as its influence mechanism, in the purpose of revealing the mode of government intervention’s influence on corporate cash policy. Thus, the research idea of this paper can be divided into three sections in general:1. Study and test on the influence of government intervention on the amount of cash holding, based on the research findings about the influence of government intervention on the amount of cash holding by empirical study, the influence mechanism of government intervention on corporate cash policy is researched, and then the empirical test is carried out with the combination of ultimate ownership and its interaction; 2. Study and test the influence of government intervention on the value of cash holding, first of all, the empirical regression analysis about the fact that the value of cash holding is lower than book value in the listed companies in China, and based on this, the marginal effect of multi-phase lagged variable of corporate capital expenditure on corporate value is studied to prove that over-investment exists in corporate, and it reduces the value of corporate cash holding, and then the regression analysis on the impact of government intervention and ultimate ownership on the value of corporate cash holding is carried out to further indicate the impact of government intervention on corporate over-investment and then on the value of corporate cash holding in order to verify the influence mechanism of government intervention on the value of corporate cash holding; 3. The impact on the speed of adjustment, based on the empirical study in this paper, the conclusion that the target level of cash holding exists in corporate in China is verified, and then the target level of corporate cash holding is studied by linear fitting, the asymmetry of adjustment speed is verified, based on this, the influence of government intervention and ultimate ownership system on the speed of adjustment is studied.According to the above-mentioned theoretical and empirical study, it is found that government intervention has a significant impact on the amount of cash holding, the value of cash holding and the speed of adjustment by empirical study, and this is very common in China, and then, the influence mechanism of government intervention on the amount of cash holding and holding value is revealed in this paper, by empirical study it is found that the influence degree of government intervention on cash holding of state-controlled enterprises and non state-controlled enterprises varies in different stages of economic development and different management forms of enterprises. But according to the research about the value of cash holding, it is found that corporate capital expenditure and the marginal value of cash holding show a significant downtrend with the increase of the number of lag phases by empirical study, which powerfully proves that corporate reduces the value of cash holding by means of over-investment, and this is more obvious in these state-owned enterprises; at last, the results of empirical study show that the target level of cash holding exists in firms in China, and the speed of adjustment is asymmetrical, government intervention and ultimate ownership system has a significant impact on the speed of adjustment, and it is asymmetrical as well.The conclusion of this dissertation will influence factors of cash holdings is extended to government intervention level, expand the company’s cash holdingsamount of research areas, for our corporate cash holdings, the reform of the government system and the external mechanism of corporate governance reform to provide theoretical suggestions and guidance; at the same time, the resultsalso found that the marginal value of capital expenditure is lower than the book value, and with the time show a significant decline, provide strong evidence for the company to reduce the value of the company through investment in low valueitems, government intervention and the ultimate ownership interactive items oncash holdings influence the results for the interpretation of our ultimate ownership structure on corporate cash holding strategy has added significance,so the research has important theoretica value and the practical significance.