China's Listed Companies The Level Of Cash Holdings Factors

Cash is the most liquid asset in modern company. Meanwhile, it is an important prerequisite to keep company continuous operation. The study of cash holding has involved in many respects and formed very mature results in foreign countries. Now there are three main kinds of basic theory:Transaction cost model and Tradeoff theory,Asymmetric information model and Pecking order theory, Agency theory and Free cash flow theory. Empirical research was related to two main respects: factors of influencing the level of cash holding and economic consequences of cash holding. Compared with the large number of achievement of foreign research in cash holdings, the current study in cash holding is not profound and just at the beginning stage in China.In 2002, it is required that listed companies should disclose related information of the actual ultimate controller in annual report. Since 2004, almost all listed companies disclosed the ultimate controller. Ultimate ownership structure begins to attract attention. Overall, the distinctive characteristics of ultimate ownership structure of Chinese listed companies are as follows: high concentration of equity, the most state-owned ultimate controlling shareholders, the large separation degree of control rights from cash flow rights of ultimate controlling shareholders. At present, Chinese research on the influencing factors on the level of cash holding are mostly related to the direct ownership structure, rarely considered ultimate ownership structure.In this paper,we select 407 sample companies which have separation of control rights from cash flow rights of ultimate controlling shareholders.Then we use multiple linear regression model and empirically investigate the factors of influencing the level of cash holding, including the ultimate ownership, board features, financial features etc.The empirical results show: Chinese listed companies have high level of cash holding and large difference among various industries; The separation degree of control rights from cash flow rights of ultimate controlling shareholders is large and is significantly positive related to the level of cash holding,which supports Agency theory; Company size has significantly positive correlation with the level of cash holding, which is different from Tradeoff theory and Asymmetric information model; Cash flow has significantly positive correlation with the level of cash holding,which verifies Pecking order theory; Dividend payment has significantly positive correlation with the level of cash holding, which is an important factor of influencing the level of cash holding; Bank debt is significantly negative related to the level of cash holding, which tell us that bank has acted as a supervisory role, reduced agency cost and unnecessary cash holding; Financial leverage has significantly negative relation with the level of cash holding,which is inconsistent with Tradeoff theory; There is no evidence which show the nature of ultimate controlling shareholders, equity balance ,board size and growth have significant effect on the level of cash holdings.