Study On The Influences Of Institutional Environment And Government Control On The Value Of Corporate Cash Holdings: Evidence From Chinese Listed Companies

Brealey and Myers (1996) stated that how to determine the optimal firm cash holdingsis one of the ten puzzles undetermined in the financial research field. Firm cashholdings not only reflect the firm's financial strategy and operating strategy, but alsoare related to the corporate governance and institutional environment. And the investors pay more attention to the question that what is the economic consequence of the cash holdings:value creating or value destroying.In this paper, the introduction of the system of environment and government-controlled factors, using empirical data on Chinese listed companies from 2001 to 2006, analyses the impact of institutional environment and governmental control on the value of cash holdings. The organization of this paper is as follows:chapter 1 gives an introduction and clarifies the research motivation. In chapter 2, I review the theory and prior literature related to cash holdings. Chapter 3 analyzes China's institutional background and proposes research hypothesis of institutional environment and governmental control on the value of cash holdings based on agency theory. Chapter 4 is the main part of this paper, These four empirical topics are from four perspectives:the value of cash holdings, the value of excess cash, as well as excess cash and over-investment behavior.The main conclusion of the study are as follows:l.The market value of cash held serious discount in China's listed companies, for every dollar the average level of cash value of about 0.29 yuan or so, and Pinkowitz et al. (2006) found that weak investor protection countries closer. This may be associated with less investor protection and corporate governance is not perfect, and shareholders (or medium-sized and small shareholders) can not form an effective supervision and restraint on the manager's (or a major shareholder) behavior on holding cash and using cash, resulting in the decision-making of holding cash deviated seriously from the goal to maximize shareholder value, the lower the value of holding cash.2.1nstitutional environment can impose restrictions effectively on the managers, sometimes the controlling shareholder, to obtain private income, improve the level of protection the interests of investors, thereby increasing the value of cash holdings.3.Compared with the non-government-controlled listed companies, the government-controlled listed companies with higher agency costs, lower level of protection the interests of investors, the company holds a lower market value of cash.4.Compared with the non-government-controlled listed companies, the governance environment's positive effect on the value of the cash holdings is weaker in government-controlled companies.5.We also found that the excess cash would lead to excessive investment, especially in government-controlled companies.The improvement of institutional environment restricted the excessive investment in listed companies, thus is conducive to enhancing the value of holding cash.So from the perspective of shareholders, especially the minority shareholders, the important things is not the levels of cashholdings, but should speed up the improvement of institutional environment, build the effective mechanism to monitor the managers, sometimes the controlling shareholder, how to use the cash, and create a fair, competitive, free market environment so.as to give full play to the market in resource configuration guide.