The Study On The Determinants Of Cash Holdings

Cash holdings theory is always one of the most controversial issues in finance and an important finance behavior and management strategy of corporate. Cash holdings not only relate to firm-specific characteristics, but also relate to corporate governance. Western scholar had started their cash holdings research from the different point of view, and presents some cash holdings theory, including static tradeoff theory, asymmetry information theory, agency cost theory and other financing theory. In Western Countries many experiential research on corporate cash holdings have developed gradually and the determinants of cash holdings has increased rapidly. In empirical study, they found evidence that corporate characteristics, such as growth opportunities, corporate size, cash flow, finance leverage. Comparing to Western Countries, our scholar had started research on cash holdings at the beginning of the stage.The firms' public trade in China stock is around the special institutional environment, such as unique ownership structure, imperfect legal protection to investors, unbalanced development of capital market and defective corporate governance mechanism, etc. What facts should be responsible for the choice of cash holdings of Chinese listed companies? Can western cash holdings theory be used to explain ways of Chinese listed companies? How does institutional environment affect cash holdings choice through firm characteristics? All the above problems are open for theoretical analysis and empirical test.Based on reviewing relevant literatures and Chinese special institutional environment, the paper divides the determinants of corporate cash holdings into firm-specific characteristics facts and corporate governance facts, investments the empirical determinants of corporate cash holdings basing a sample of 1039 firms public trade in China stock the 2005-2007 period by regulation analysis and the empirical determinants of corporate cash holdings basing a sample of 480 firms public trade in China stock the 2005-2007 period.The results of the paper reveal that firm-specific characteristics have a significant correlation. Corporate size has a significant positive correlation on cash holdings, it means less cash holdings with large size. Capital tangible has a significant positive correlation on cash holdings, it means corporate has less asymmetry information and less agency cost to decrease external finance cost. Finance leverage has a significant positive correlation on cash holdings, so finance leverage can substitute for bank debt which can also replace much more cash and negotiable securities. Corporate holds less cash with debt. In terms of corporate governance, this paper observe that have an non-significant effect on cash holdings, because of the firms public trade in China stock are around the special institutional environment, outside director, manager share, board of director size, Top1, Top2-5, have an non-significant effect on cash holdings.