A Study On The Impact Of Vertical Integration On Cash Holdings Of Enterprises

With the rapid development of China's economy and the rapid rise of the Internet industry,the boundaries of enterprises continue to extend outwards,through a variety of ways to go deep into the layout of each end of the industry and optimize the supply chain,to achieve economies of scale and play a synergistic effect.Many enterprises intervene in the upstream and downstream of the industrial chain to realize vertical integration through acquisition,merger or self-construction.Affected by new crown outbreak in 2020,there is a two-way squeeze between supply and demand in some companies,the obstruction of supply chain affects the normal production and operation of enterprises.Vertical integration can alleviate the negative impact of supply chain obstruction on enterprises to some extent,and reduce the information asymmetry between the company's controllers and managers.The headquarters of enterprises improve the information supervision advantage and optimize the effectiveness of decision-making through vertical integration.With the improvement of the degree of vertical integration,the enterprise's boundary and the length of the industrial chain are further extended,and the transaction cost of the enterprise can be reduced after vertical integration,which provides a favorable environment for the enterprise to carry out technological innovation.As a participant in the industry,the competitive strategy in the industry may influence the financial strategy and strategic configuration of the enterprise.When an enterprise broadens the production and operation boundary to the upstream and downstream of its industry,the vertical integration strategy may make the enterprise in an advantageous position in the competition.Vertical integration of enterprises to achieve production expansion,optimization of financial decision-making and other effects,specifically in the strengthening of competitive advantage,reducing transaction costs,increasing operating income,and weakening information asymmetry.Cash is the blood that the enterprise depends on to survive and maintain operation,and it is the most liquid asset in the company.On the one hand,enterprises need to maintain a certain amount of cash to repay finance,purchase goods and services;On the other hand,the low profitability of cash may deprive enterprises of some good investment opportunities and increase the risk of management abusing cash assets.For managers,it is an extremely important problem how to implement the management principles such as the moderate amount of cash,timely adjustment and safety guarantee.The rational allocation of cash and the improvement of its use efficiency are the concerns of corporate liquidity management.In liquidity management,managers pay more attention to the economic consequences of holding cash,including the value effect of cash holdings,the competitive effect of cash holdings and the investment effect of cash holdings.In order to give full play to the positive effects of cash holdings,enterprises will adjust their cash holdings.In order to minimize the cost of cash holding and obtain the maximum economic benefit,the company will take advantage of various investment and financing opportunities to adjust the actual cash holding to the target cash holding,but the adjustment cost will affect the process.The existence of adjustment costs makes enterprises face different resistance to increase cash holdings and decrease cash holdings,and the adjustment speed and deviation degree are also different.Vertical integration improves the enterprise's risk response capacity through the integration of the industrial chain,alleviates the information asymmetry,and makes the management more accurate in judging the market supply and demand.Supply chain affects the cash holdings of enterprises.Vertical integration,as one of the stable supply chain management methods with property right relationship,will also change the level of cash holdings of enterprises.This is similar to the principle of supply chain integration to reduce the cost of enterprises to achieve efficient capital allocation and improve financial performance.Therefore,this dissertation will study the impact of vertical integration on cash holdings.Furthermore,based on the motivation of cash holding,from the perspective of preventive motivation,transactional motivation and agent motivation,whether vertical integration will weaken the motivation of corporate cash holding is also one of the issues explored in this dissertation.On the basis of the relationship between vertical integration and cash holding level,in order to clarify the impact of this effect on the production and operation of enterprises,this dissertation will discuss the impact of vertical integration on the economic consequences of cash holding.First of all,the company's cash holding behavior not only reflects the financial strategy and business strategy,but also is closely related to the company's value.Under the enterprise's vertical integration strategy,whether the economic behavior brought by excessive cash holding is "value creation" or "value destruction" is even more important for external investors,internal managers and government departments.Secondly,cash holding can help enterprises seize better investment opportunities and gain a competitive advantage in market share compared with their competitors in the same industry.Can cash holdings maintain this competitive advantage after vertical integration?Again,enterprise's financial decision-making,especially the flow asset allocation will be changed along with the enterprise vertical integration degree,and vertical integration to the effect of cash holdings also corresponding embodies in the company's investment behavior,whether the enterprises with a high degree of vertical integration reduce the inefficient investment of enterprises and whether the excessive investment behavior of excessive cash holding will be restrained?In order to maintain financial flexibility,reduce financial risks and maximize enterprise value,based on the changes in the external and internal environment,the management will constantly make dynamic adjustments to cash holdings to adapt to the changes in the internal and external environment.When the cash holding level of enterprises is not a fixed cash holding ratio,but a constantly changing range of cash holding ratio,will the vertical integration of enterprises affect the adjustment rate of cash holding level?For enterprises with a high degree of vertical integration,whether the deviation of their cash holdings from the target cash holdings level will be affected to some extent.In summary,based on the existing research results,this dissertation focuses on the impact of vertical integration and cash holding level,the impact of vertical integration on the economic consequences of cash holding,and the impact of vertical integration on the dynamic adjustment of cash holding.The main research contents can be divided into the following seven chapters.The first part is introduction.This chapter first introduces the research background,then puts forward the problems intended to be studied in this dissertation,and explains the theoretical significance and practical value of this research.Then,it puts forward the research ideas,research framework and research methods adopted in this dissertation,and finally explains the innovations to be realized in this dissertation.The second part is literature review.This chapter will focus on the two core concepts of vertical integration and cash holding to review the relevant literature at home and abroad.Firstly,the literature on cash holdings is reviewed.Secondly,the literature on vertical integration is reviewed.At last,literature review is carried out in order to make the research content of this paper not only inherit but also make a breakthrough.The third part is the theoretical basis.This chapter analyzes the theory of financing priority,principal-agent theory and trade-off theory.Firstly,it defines the concepts of cash holding and vertical integration,and then analyzes the financing priority theory,principal-agent theory and trade-off theory and their impact on cash holding.The fourth part is the empirical study of vertical integration and cash holding level.This chapter first conducts an empirical analysis of the effect of vertical integration on cash holdings,and then uses the preventive motivation,transactional motivation,and agency motivation of cash holdings as the starting point to examine the uncertainty,transaction costs,and information environment for vertical integration The adjustment effect of cash and cash holdings verifies the weakening effect of vertical integration on corporate cash motivation.Further analysis is made on the relationship between backward integration and forward integration and cash holding level,as well as vertical integration on the financing constraint mechanism of cash holding.The fifth part is the empirical study of vertical integration and the economic consequences of cash holdings.This chapter examines the empirical research on the value effect of vertical integration on cash holdings,the competitive effect of cash holdings and the investment effect of cash holdings.In the further analysis,the influence of forward integration and backward integration on the economic consequences of cash holdings will be distinguished,and based on the motivation of cash holding,the moderating effects of uncertainty,transaction costs and information environment on the economic consequences of vertical integration and cash holding were investigated.The sixth part is the empirical study of vertical integration and dynamic adjustment of cash holdings.This part makes an empirical study on the mean reversion characteristics of cash holdings,the influence of vertical integration on the adjustment speed,and deviation degree of cash holdings.In the further analysis,the influence of backward integration and forward integration on the adjustment speed and deviation degree of cash holdings will be studied.Based on the asymmetry of dynamic adjustment of cash holdings,the influence of vertical integration on dynamic adjustment and degree of deviation of cash holdings was investigated.The seventh part is the research conclusion,policy suggestion and deficiency.This chapter will first summarize the conclusions of the relationship between vertical integration and cash holdings,so as to achieve the purpose of this dissertation.Secondly,based on the conclusions of this dissertation,specific policy Suggestions will be put forward for vertical integration and cash holdings.At last,the dissertation points out the shortcomings in the research process,and makes a prospect for the future research.Through the research in this dissertation,the following conclusions are obtained:First,vertical integration weakens the precautionary motivation,transactional motivation and agency motivation of enterprise cash holding.More specifically,for enterprises with insufficient cash holdings.Vertical integration weakens the motivation of enterprise cash holdings,that is,compared with enterprises with low uncertainty,low transaction costs and good information environment,vertical integration of enterprises with high uncertainty,high transaction costs and poor information environment has a more obvious effect on reducing the level of cash holdings.Furthermore,both backward integration and forward integration of enterprises can significantly reduce the level of cash holdings of enterprises.The financing constraint of enterprises plays a part of intermediary effect in the influence of vertical integration on cash holding level.Second,vertical integration has a positive effect on the economic consequences of cash holdings.The higher the degree of vertical integration,the higher the value of cash holdings,the higher the competitive effect of cash holdings,and the lower the overinvestment of excess cash holdings.Furthermore,the dissertation examines the influence of backward integration and forward integration on the economic consequences of cash holdings,and finds that backward integration and forward integration improve the value of cash holdings and the competitive effect of cash holdings,and reduce the excessive investment of cash holdings.To some extent,vertical integration can make up for the negative effects brought by high uncertainty,high transaction costs and low information environment.In other words,when the uncertainty is high,the transaction cost is high and the information environment is poor,the effect of vertical integration to increase the economic consequences of cash holdings is more obvious.Thirdly,the cash holdings of listed companies in China have the target cash holdings,which fluctuate around the target value and converge to the target value continuously.The higher the vertical integration of enterprises,the faster the dynamic adjustment of cash holdings;The higher the vertical integration,the lower the deviation of cash holdings.Furthermore,based on the research of backward integration and forward integration,it is found that both backward integration and forward integration of enterprises improve the dynamic adjustment speed of cash holding level and reduce the deviation degree of cash holding level.Based on the asymmetry of the cash holding level,it is found that the acceleration of the vertical integration to accelerate the dynamic adjustment of cash holdings only works in the case of excessive cash holdings,while the vertical integration of the enterprise fails Significant impact on the dynamic adjustment of cash holdings The dynamic adjustment of cash holdings has a significant impact.Vertical integration can only reduce the degree of deviation of cash holdings in the case of excessive cash holdings,and it fails to affect the degree of deviation of cash holdings in the case of insufficient cash holdings.The research contributions and possible innovations of this dissertation are as follows:First,vertical integration is selected as a new perspective to study the cash holdings of listed companies in China,which enriches relevant studies on the economic consequences of vertical integration.There have been more studies on the economic consequences of vertical integration,which focus on the impact of vertical integration on business performance of enterprises,and fewer studies on the impact of vertical integration on financial decision-making.This dissertation studies the impact of vertical integration on corporate cash holdings in a more specific way.In the research,the vertical integration is further subdivided into forward integration and backward integration to verify the impact of the enterprise's supply chain integration on the enterprise liquidity management,as well as the economic effect of such impact,providing reference and reference for the enterprise to choose the correct strategic direction for its own financial allocation.And It also provides supporting evidence for the implementation of vertical integration strategy.China is in the period of economic transformation,and the legal system,property rights protection and market environment are not perfect.Vertical integration to some extent can make up for the defects caused by the system,property rights and external environment,and reduce the negative externalities.The allocation of enterprises' current assets is also improved with the improvement of vertical integration.Second,it enriches the related research on the influencing factors of cash holdings.Most existing studies have studied cash holdings of listed companies in China from the perspective of corporate characteristics,corporate governance and macro environment.Although some scholars have studied cash holdings from the perspective of diversification strategy and supplier/customer relationship,no scholars have studied cash holdings from the perspective of integration strategy.In this dissertation,vertical integration and cash holdings are integrated into a framework for research,especially at present,China's capital market environment is not perfect,the rapid development of supply chain integration,research on integration strategy for enterprises to adapt to the market environment to make the right strategic choices and financial decisions is extremely necessary.Thirdly,On the basis of previous studies,the cash holdings,the economic consequences of cash holdings and the dynamic adjustment of cash holdings are incorporated into the overall research framework of cash holdings.Based on these three aspects,the cash holdings of listed companies in China are studied step by step.Cash holdings is likely to be "efficient utilization",but also is likely to be " ineffective dissipation",this dissertation not only focuses on the relationship between vertical integration and cash holdings,more explores the vertical integration of cash holding economic consequences and the influence of dynamic adjustment,is advantageous to the enterprise more deeply explore "cash holdings mystery",and accurate decision making cash.