Private Listed Company: An Empirical Study Of Factors Affecting Cash Holdings

As one of the important assets in company, cash has two distinct features: firstly, cashhas stronger liquidity, can pay for daily transaction and investment projects at any time,reducing trading costs and liquidating costs; secondly, cash has lower yield, do not createany profits and accordingly with moral risk that higher managers would operate cash assetson their own way. Foreign scholars′researches about cash holdings include theorypresentation and empirical study, has explained static tradeoff theory, asymmetryinformation theory, agency cost theory and financing hierarchy theory. Foreign scholarshas studied corporate size, growth opportunities, finance leverage, cash flow, cashsubstitutes, debt maturity structure, cash dividend payment and higher managers shareholding, interest concentration ratio, board features and other variables how effect cashholdings.In this background, this paper chooses private listed companies between2003and2010in Shanghai and Shenzhen stock market as a large study sample, then find out privatelisted companies that are sustainable during the eight years as the small study sample. Thispaper selects some financial characteristics variables such as corporate size, growthopportunities, finance leverage, cash flow, cash substitutes, debt maturity structure, cashdividend payment and higher managers share holding, interest concentration ratio, boardsize, the proportion of independent directors and chairman and CEO is the same one or notas the paper explanatory variables to study the cash holdings of private listed companies.This paper analyzes the conclusions0f large sample and small samples contrastively,indicating that the good continuity private listed companies will consider different factorsfrom common private listed companies when make cash holdings decision, then proposessome recommendations. This is a major feature of this paper.This study shows that cash holdings of the good continuity private listed companies islower than the overall level of private listed companies, the front one has higher capitalefficiency. On the decision-making of cash holdings, most private listed companies willconsider the company’s financial leverage, debt financing capacity, followed by cash flowand cash substitutes; the good continuity private listed companies will consider the cashflow firstly, and then are cash substitutes, debt maturity structure. In the case of nosignificant difference on the level of financial leverage, factors taken into cash holdingsdecision-making is different, the good continuity private listed companies will considertheir own cash flow mostly, rather than debt financing capacity. They will turn the outside "blood transfusion" into their own "blood making" on the greater extent in order to obtainthe continued stability of the business.