Research On The Cash Holdings Of Chinese Listed Companies From The Perspective Of Large Shareholder

Using the data from Chinese stock market, this paper investigates the influence of the large shareholder on the cash holdings of the listed companies and discusses whether the high level of cash holdings causes the agency problems of management in the listed companies.This thesis starts with analyzing the institutional background in Chinese stock market and points out that the large shareholder has incentives to manipulate the cash holding policy of listed companies in order to meet his own liquidity demand, which means the listed companies hold more cash than the level the listed firms actually need for the potential use of the large shareholder. In our model, when the large shareholder considers the convenient cost and the damaging cost at the same time, the proportion of shares held by the large shareholder has a nonlinear inverse-U relation with the cash holdings of listed companies, which means the relation is positive where the proportion is low and negative where the proportion is high.Then we find evidences supporting our analysis, using nonparametric, semi-parametric and parametric OLS regressions with Chinese capital market data from 2000 to 2006. And the inverse-U relation is stronger in firms with low ownership concentration, firms having not been reformed and firms with less access to bank because the liquidities of large shareholders in these firms rely on the cash of listed companies much more.We also test whether the Split Share Structure Reform can induce the large shareholder less willing to manipulate the cash holdings of their listed companies. And we find that the firms owned by the state, with low stock liquidity and with good access to bank still have high level cash holdings, which means large shareholders of these firms are not affected by the Split Share Structure Reform significantly.After analyzing the large shareholder's influence on the cash holding policies of the listed companies, this thesis discusses the consequence of high level cash holdings, using the data of entrusted investment from 2001 to 2004 in Chinese listed companies. We find that the"manipulable cash"is negatively related to the return of entrusted investment, and given the amount of manipulable cash, the proportion of shares held by large stockholder is positively related to the return of entrusted investment. Our findings suggest that when managers have more manipulable cash on hand, they use the money less efficiently. Controlling shareholders have a monitoring effect on this behavior of managers. And there is no evidence supporting the Free Cash Flow hypothesis.