An Empirical Study On High Cash Holdings' Motives And Economic Consequence Of Listed-Firms In China

Corporate cash holdings is an important kind of financial behavior in firm finance and operation strategy, corporate cash holdings not only relates with firms'day-to-day transaction and operation activities, such as purchasing raw materials, paying wages; but also closely relates with other financial decisions, for example, corporate capital structure,investing-financing decisions,dividend decisions. Besides, corporate cash holdings level correlates with the situation of corporate governance. . Whether does corporate cash holdings pay positive or negative effect on corporate value? After the coming out of the static trade theory,the financing hierarchy theory,free cash flow hypothesis, there having been coming forth of great amount of research about empirical literature of economic consequence of high cash holdings from deep perspective of financial and economic theory.The paper is based on reviewing systematically western scholars'two domain of corporate cash holdings—the determinants of corporate cash holdings and the economic consequence of corporate cash holdings. The dissertation chooses 842 listed companies in Shenzhen and Shanghai Stock Exchange with complete financial data from 2000 to 2005 as samples and makes research about the motives and economic consequence of high corporate cash holdings. In the end ,the paper constructs multiple regression model and analyzes empirically whether or not there is overinvestment problem in high cash holdings firms.The research results show: (1) The mean of cash and cash equivalents to total assets in listed companies is 15.58%, from the level of corporate cash holdings from 2000 to 2005, the mean displays decreased trend. (2) High cash holdings firms generally concentrate in high fierce-competitiveness manufacturing industry, but low fierce-competitiveness drilling industry, hydropower and gas industry, transportation and warehousing industry, the proportion of choosing high cash holdings is low. (3) By T-testing the mean of and Mann-Whitney U-testing the median of operating performance of high and normal cash holding companies simultaneously, the operating performance of high cash holdings companies is hindered significantly compared to normal companies and supports the agency theory. (4) By multiple regression analysis, the influence coefficient of excess cash on modified IAOP and ROE is -0.100,-0.133, significantly5%. The negative coefficient shows that excess cash hinders operating performance. (5) Choosing at least 3 years high cash holdings companies continuously from 2000 to 2005 as sample, we find that there is overinvestment in high cash holdings companies, leading to low investing efficiency.