The Influence Of Excess Cash Holding On Corporate Over Investment Behavior

Over investment,referring to practical investment which goes far from expected normal investment level,results in deviating from the optimal investment state.Current studies illustrate these behaviors mostly from the perspective of agency theory,that problem can be caused from managers abusing corporation free cash to engage in proxy opportunistic behavior,such as over investment,which seriously damages the interests of the company and the interests of shareholders.Over investment behavior is detrimental to the development of corporations.Therefore,past studies hold negative attitudes to over investment behavior,disagree that debt factors governing corporation over investment have inherent differences.From this homogeneous perspective,scholars advocate that debt can play a single governance role to reduce over investment behavior.But this homogeneous way of thinking does harm to discuss the nature of debt contingent governance mechanism,and ignores the initiative of the managers as well.Unlike previous studies,we re-explore over investment via financial flexibility,discuss the effectiveness of contingent governance mechanism of debt in terms of debt heterogeneity,and how managerial discretion works in financing decision making.It is said that keeping levels of financial flexibility is necessary to the sustainable development of corporations.In practice,however,high correlations exist among several financing decisions.Over financial flexibility,on the one hand,meets the demand of corporations' financing decisions,on the other hand,may harm the effectiveness.As a critical way to acquire financial flexibility,though,excess cash holding may encourage over investment of managers.Whether more excess cash holding held by managers,more over investment would be happen is still unexplored.In the current unrest capital market,considering the effect of debt heterogeneity,namely,debt factors that govern corporation over investment behavior change,what kind of changes will happen to corporation over investment behavior caused by the excess cash holding,which is the new thinking of the contingent governance mechanism of debt in the perspective of debt heterogeneity.Debt heterogeneity can be divided into debt maturity heterogeneity and debt source heterogeneity in two forms.debt maturity structure can reflect the size of debt maturity heterogeneity very well;however,relevant research literature about debt source heterogeneity lacks.According to the existing academic achievements,inspired by Herfindahl index,this paper examines contingent governance mechanism of debt played by debt source heterogeneity by constructing the index of debt source heterogeneity degree(DSHD).We introduce managerial discretion as a key moderator to explain how managers affect financing decision-making transmission mechanism since that managers play a leading role in financing decisions.Precisely speaking,those effects mainly act in two ways.For one thing,managerial discretion could directly lead to over investment caused by excess cash holding.For another,changes over managerial discretion could alter contingent governance mechanism of debt via debt heterogeneity,which may indirectly influence over investment caused by excess cash holding.After describing ineffective investment,financial flexibility,debt heterogeneity,managerial discretion,we develop related hypotheses,and find following results about corporation financing decisions which are supported by China listing corporations' data.Firstly,the relationship between excess cash holding and over investment is generally significant and positive.In another words,excess cash holding offers corporations great cash financial flexibility resources,though it could benefit managers with over investment.Under the conditions of financial resources which have low cost,hugely amount,easily accessible,unexpected and improper investment behaviors could happen more.Secondly,considering the effect of debt heterogeneity,namely,debt factors that govern corporation over investment behavior change,the relationship between excess cash holding and corporation over investment behavior also changes.We find that general debt level has no significant moderating effect among excess cash holding and corporation over investment,debt maturity heterogeneity positively moderates the positive relations between excess cash holding and corporation over investment.However,the positive relationship between excess cash holding and corporation over investment is negatively moderated by debt source heterogeneity.In particular,the effectiveness of contingent governance mechanism of debt in most prior studies could hardly and actually be used unless debt heterogeneity coming from different sources.Thirdly,Managerial discretion not only directly influences cooperation financing decisions,but also indirectly affects financing decision-making transmission mechanism through moderating effects caused by debt heterogeneity factors within corporation financing decisions.The results show that managerial discretion positively moderates the positive relationships between excess cash holding and corporation over investment.Precisely speaking,the effects of excess cash holding on corporation will be positively stronger when managerial discretion is high.The effects of excess cash holding on corporation will be insignificantly related when managerial discretion is low.The strength of the mediated relationship between excess cash holding and corporation over investment will depend on debt heterogeneity and managerial discretion.The effects of excess cash holding on corporation will be positively stronger when debt heterogeneity is low and managerial discretion is high.The effects of excess cash holding on corporation will be insignificantly related when managerial discretion is low no matter debt heterogeneity is low or high.Managerial discretion not only directly influences cooperation financing decision-making transmission mechanism,but also indirectly moderates the moderating effect of debt heterogeneity.In a word,the conclusion of this study shows that,in perspective of debt heterogeneity,the relationship between excess cash holding and corporation over investment behavior is quite complicated.Therefore,we should start from the point of view that corporation holds excess cash in order to maintain financial flexibility,make the traditional agency theory be further expanded in the context of debt heterogeneity to explore how to effectively play for the corporation debt contingent governance mechanism.At the same time,in view of the importance of managerial discretion,it indicates that top managers have played a key role in transmission mechanism of corporation investment and financing decisions,and it also affects the effectiveness of corporation debt contingent governance mechanism.