A-share Listed Companies Held By The Cash Market Value Of The Study

Based on trade-off theory, picking-order theory and agency cost theory, this paper proposed four assumptions:The marginal value of cash is decreasing in the level of the firm's cash position; An extra dollar of cash holdings is less valuable for shareholders in highly levered firms than in firms with low leverage; An extra dollar of cash holdings is more valuable for shareholders in financially constrained firms; An extra dollar of cash holdings is more valuable for shareholders in firms with growth opportunities.Using panel data of Chinese A-share listed companies during 2007-2009, this paper examined the cross-sectional variation in the marginal value of corporate cash holdings. The results show that the marginal value of corporate cash holdings is only 0.742 yuan among A-share companies, which is clearly a huge discount compared to 1.The results also show the marginal value of cash holdings declines with larger cash holdings and higher leverage which is in consist with our assumptions.Results also show great support to our assumption that marginal value of cash decline with better access to capital markets.The results do not show enough support to our assumption that marginal value of cash increase with faster growth rate.The following policy recommendations presented in this paper:developing takeover market in China, promoting the role of institutional investor in corporate governance, improving the corporate governance structure, optimizing equity ownership structure, increasing the proportion of management ownership...