The Level And Value Of Cash-holdings Among Listed Companies In China

This article discuss whether the company change it’s cash-holding policy in the financial crisis by comparing the change when the sub-prime crisis accrued in2007.This study is based on the classical theory of cash-holding and the financial accelerator theory. The company is expected to hold more cash during the crisis as a result of the preventive motive, but the changing level depends on different financial characteristic and different government one has. If the company hold more cash in the crisis, whether shareholders place more value on an extra yuan of corporate cash holdings during the crisis than before?If shareholders perceive that the complexity in obtaining external funding has increased due to the financial crisis and firms will have to give up value-increasing investments, then one yuan of cash may be worth more than it was before the crisis. Conversely, if shareholders perceive that extra cash will increase agency problems, even in a financial crisis, then the marginal value of corporate cash holdings may decrease. The financing environment of china has its unique characteristic, the state-owned company may display differently in the cash-holding from the private-owned in the financial crisis.Our empirical results demonstrate that some of the listed company in China which has certain characteristic have obviously increases it’s cash-holdings in the financial crisis.The company which has a higher financial leverage and which has a higher agency cost favors in more cashes in the financial crisis.While the company has a higher growthiness has fewer cash in the crisis, due to these companies consume more capital to maintain the normal operating. For the investors, the cash the company increase in the financial crisis is more valuable than before, based on the same company characteristic. The company with a lower Financial leverage or with financing restrains has a higher value in the cash in crisis period than other companies. Simultaneously this article has also explored in whether the financial accelerator effect work out in our country’s financial environment, to provide the reference for the consummating of the money market of China.The results above suggest the listed company should consider it’s own financial characteristic and decide the level of cash-holding when facing the financial crisis or the macroscopic environment fluctuation, rather than increasing the cash aimlessly. Simultaneously the company must further enhance the government and improve the financing environment. Meanwhile, Investors should value the change of cash rationally, considering the company’s financing restrains and governance as well as the growth potential. rather than following the principle that "cash is the king". In corporate finance, a better understanding of the impact of cash reserves during a credit crunch may shed light on patterns in firm performance during financial crises.