Empirical Study On The Determinants Of Cash Holding In Chinese Listed Corporation

Cash is the most liquid asset and is the lowest profitable asset, The decision of the cash hold is one of the most important financial decision. There is nothing cost of raising funds if the market is perfect, company can find finance anytime in the perfect market, so holding cashes or not is not important. But in the real world, there are so many factors such as taxes, information asymmetry and so on. There are two main benefits from holding cash. First, the firm saves transaction costs to raise external funds and does to have to liquidate assets to make payments. Second, the firm can use cash holdings to finance profitable investment and pay for unexpected payments. But everything has two sides, in the other side, overage cash holding will cause the problem of low-income and agency costs caused by self-motivation of managers and controlling shareholders. The theory associated with the cash holding is as follows:motivation theory, trade-off theory, pecking theory and agency theory.Among 2005 to 2008, China listed corporate cash holdings equal to net assets is 19.52%, although the average of cash holding can't be compared with the world's large companies, the relative quantity of cash holding is higher than these ones. At the same time, our listed corporations are in the special system such as:the imperfect capital market make the more costs raising funds; due to the dominance, the problem of the owner absence is serious, which create the condition for the managers' self-motivation. Furthermore, because of the high concentration of share hold and the imperfect law system, small cash holders' interests can't be protected effectively.There are so many scholars to do the research about the theory and empirical test of the cash holding, the research found that these factors have important influence such as corporation's cash flow, volatility of cash flow, the level of debts, corporation size, shareholder concentration, the manager ownership, the size of the board, legal environments and volatility of macroeconomics.In the paper, on the foundation of reviews what the foreign and initial research about the cash holdings, selected 1128 listed companies in shanghai or Shenzhen stock exchange, add up to 4512 samples totally. By empirically tests how firm's characteristics affect corporate cash holdings by adopting descriptive statistical, one-way AN OVA, Person relation, and linear regression. The conclusion reveal that(1) there is a systematic difference in corporate cash holdings among different industries, industry classification is an important factor that affects corporate cash holdings;(2) cash flow is significantly and negatively related to cash holdings;(3) volatility of cash flow is significantly and positively related to cash holdings;(4) firm's grow opportunities is significantly and positively related to cash holdings;(5) leverage is significantly and positively related to corporate cash holdings;(6) manager ownership is significantly and negatively related to corporate cash holdings;(7) the proportion of state-owned shareholder is significantly and positively related to corporate cash holdings;(8) the size and the structure of the board are not significantly related to the corporate cash holdings.