The Empirical Study Of The Correlation Between Abnormal Cash Holdings And Enterprise Value Of Listed Companies

Cash is the most liquid corporate assets, the maximum flexibility assets, but it isalso the lowest profitable assets. How to choose between liquidity and profitability,which is the study of enterprise cash holdings, is an important subject with greattheoretical significance and application value of cash management. For now, cashmanagement research is mostly study the determination of optimal cash holdings andcash holdings influencing factors. However, the ultimate goal of the company’s cashmanagement is to maximize the use of corporate assets, so as to realize the enterprisevalue maximization. Therefore, the correlation study on abnormal Cash Holdings andenterprise value began to attract the attention of the scholars. But how to combine thethree aspects to consider is the main problem of this paper. Instead of cash holdings,this article research abnormal cash holdings. This is the deviation of actual cashholdings and cash holdings theory. This is because different industry needs differentcash holdings. And companies’ own characteristics affect its cash holdings. Therefore,different company’s cash holdings are not comparable. But the study of abnormal cashholdings just can make up for this deficiency. Meanwhile this study can reflect theenterprise’s cash management decision. This study centered on abnormal cashholdings of listed companies, and this article constructed a new judgment method ofabnormal cash holdings. Through this method, companies are divided into three kindsof samples: Insufficient cash holdings, too much cash holdings and appropriate cashholdings. At last, separately analyze the correlation between abnormal cash holdingsand enterprise value in different samples. The logical structure of this paper is asfollows:The first part is an introduction. This part mainly explains the theme andsignificance of the study, and introduction the research idea and structure of the arrangement, meanwhile succinctly sums up the innovation of this article.The second part is Literature Review. This part Collect and organize relatedliterature at home and abroad respectively from the cash holdings theory, cashholdings empirical research and abnormal cash holdings research. To find out thedeficiency of existing research, supplement the research in the field of cashmanagement.The third part is the listed companies’ cash holdings situation analysis. This partanalyses the Industry-wide cash holdings and each industry’s cash holdings. Andcompare the results of the analysis.The fourth part is the judgment of abnormal cash holdings. First of all, establisha new abnormal cash judgment model. Second, establish a cash holdings influencefactors model, and use this model to measure the exceptional cash holdings. Finally,determine the range of optimal cash holdings, and classifying the listed company’scash holdings behavior based on this range. Meanwhile, calculate abnormal cashholdings.The fifth part is the empirical analysis of the correlation between abnormal cashholdings and enterprise value. This section generalizes the related theory of enterprisevalue and cash holdings, and based on this, build hypothesis. Then research abnormalcash holdings’ impact on corporate value in the different samples. And compare theresults of analysis of different samples.The sixth part is conclusion. Summarize the research conclusion, and putforward the corresponding countermeasures and Suggestions on the existing problems.At the same time, points out limitations of this study and future research direction.The main conclusions are as follows:Study the status of the cash holdings of listed companies in China. The resultshows us: from2007to2011, according to the industry statistics, the number of thelisted company, which’s cash holdings is more than average cash holdings, is less thanthe number of others. Listed companies in China tend to hold lower cash. If studyevery industry respectively, we found that each industry’s cash holdings is verydifferent. But show the same characteristics. China’s listed companies tend to holdless cash.For wholesale and retail industry, according to the result of multivariateregression model, we found that:(1) the real impact of enterprise value is not cashholdings but abnormal cash holdings.(2) Regardless of the agency costs, in an areawhere lack of cash holdings, More abnormal cash holdings greater enterprise value This is because of the lack of cash holdings company may have a loss or cash flowproblems. In this case, solely increase in cash holdings not only can’t solve businessproblems, it may be a waste of resources because of the improper use of funds. Inother samples, the correlation between abnormal cash holdings and firm value was notsignificant.(3) Under the influence of agency costs, abnormal cash holdings andenterprise value always has a significant negative correlation. As long as the cashholdings deviating from the moderate range, corporate value will be increased withthe increase of abnormal cash holdings.(4) This paper demonstrates that under theinfluence of agency costs, the correlation between abnormal cash holdings andenterprise value is different. Significant also obviously be different. In addition, whenconsidering agency costs, the correlation coefficient is comparatively large. That is tosay, due to the impact of agency costs, abnormal cash holdings have significantnegative impact on the enterprise value.Based on the above conclusions, this paper proposes the corresponding policyrecommendations:(1)Improve the level of corporate governance and the internalmanagement mechanism, at the same time, strengthen external supervision.(2)Improve the company’s efficiency of resource allocation and cash managementcapabilities, strengthen cash management, to avoid non-efficiency investments,underinvestment or idle funds.(3) Improve the information disclosure mechanism oflisted company to resolve the problem of asymmetric information.(4) Promote thereform of bank system, to strengthen and improve the enterprise credit system andrelated legal system.(5) Develop the bond market, expand financing channels. Andestablish a stable, mature and efficient capital market environment.The innovation of this study is as follows:(1)This paper puts forward a morereasonable measure model of abnormal cash holdings. Abandoned in the past onlyconsidered optimal cash holdings, this paper puts forward the cash holdings moderaterange. This method broke through the traditional shackles, make the researchconclusion is more reliability and universality.(2) Due to the existence of the bigindustry difference of cash holdings, so analysis of each industry is necessary. Thispaper choose wholesale and retail trade industry as the research object，because it’scash holdings fluctuations is relatively stable, sample sizes is adequate, and it’s cashholdings is more than the average cash holdings in the industry-wide. Cash holdingshave a significant impact on enterprises in the wholesale and retail trade industry.Prior to this, there is no literature to study the relationship between cash holdings andenterprise value about this industry. Therefore, the results of this study on corporate cash management are of great significance.In this paper, on the basis of summarizing existing research, the correlationbetween abnormal cash holdings and enterprise value of listed companies is studied.This article has obtained certain research results, but because of the limitation ofresearch conditions and theory knowledge, there are still some limitations of thisresearch:(1) The empirical research select wholesale and retail trade industry as asample, is due to the difference of the industry, and to make sure the results is morerepresentative. Therefore, the interpretation of the whole industry is insufficient.Future research could be from other industries, research whether homogeneous.(2)Subject to the availability of data, no variables support the theory of asymmetricinformation. In addition, for example, the accounting system, competition in theindustry as well as the life cycle and other factors in this article are not taken intoaccount. Therefore, future research should focus more on the comprehensiveness ofthe indicators.(3) This study did not consider whether the abnormal cash holdings haslasting influence on enterprise value, as well as whether abnormal cash holdingsbehavior is contingent, therefore, research has been limited.