The Process Of Marketization, Board Governance And Cash Holdings

A company's sustainable development can not realize without sufficient cash flow. It is important for the company that how to allocate the company's cash balancing short-term interests and long-term development needs. According to agency theory, how to allocate the company's cash is the core conflict of interest between shareholders and managers. Therefore corporate governance as an important mechanism for solving agency problems may has an important effect on the company's cash holdings. Since 1978, China has adopted the reform and opening policy developing market economy system. As an emerging and transitional country, the corporate governance environment may be significantly different from Western developed countries. From the study of La Porta et al, we can know that a country's legal system and other institutional environment may affect the company's daily decision and corporate governance significantly. Then in China whose market economy is unbalanced among different provinces or cities, how external institutional environment corporate governance affect the company's cash holdings?In this thesis, we select the overall process of the market index which is used as an external institutional environment factor and board governance which is used as a corporate governance factor to study how corporate governance affect the company's cash holdings in the special institutional environment of China for a sample of 925 public companies in China A share market in the period 2003-2005. In this thesis, we used statistical analysis software stata10.0 and analyze the sampled data with descriptive statistics and least squares regression analysis. To ensure the accuracy of empirical analysis, we also used weighted least squares regression results for an amendment. Empirical results show that:the overall process of the market index, board size, the sum of the top three highest-paid directors'remuneration and the equity ratio of board holding have an positive relation with cash holdings; the proportion of independent directors, board committees and corporate cash holdings are negatively correlated; board meetings and corporate cash holdings has an U-type relationship which means with the increase in the number of board meetings, corporate cash holdings first increases and then decreases; there was no significant correlation between board leadership and cash holdings.According to the analysis above, we concludes:a good external institutional environment can reduce uncertainty in business operations, information asymmetry, government intervention and improve corporate management autonomy and maintain high cash holdings in listed companies; effective board governance will help improve the effectiveness of corporate governance, reduce the agency problem and reduce the cash holdings of listed companies.