The Relationship Between The Ownership Structure And Level Of Cash Holdings Of The Listed Companies In China

Cash is the most liquid asset in the modern company. the activities of cashholdings can affect the company’s financial behaviors, such as investment, financingand dividend payments, which is essential to the company’s survival and development.In recent years, compared with other developed countries, the level of cash holdings ofthe Chinese listed companies is higher, many Chinese listed companies tend to holdlarge amounts of cash, which may be affected by the special institutional environmentand market environment of the Chinese listed companies. The special internal andexternal environment cause that the ownership structure of the Chinese listed companiesis relatively complex, as we can see, the shareholding concentration is very high, theratio of state-owned shares is high, and there exists a "single-large shareholder" in manycompanies. With the completion of the non-tradable share reform, the shareholding ratioof the shareholders and the circulation character of some shares have changedcorrespondingly, the optimized ownership structure of listed companies will causecertain effects to their level of cash holdings. In recent years, China’s regulators havereleased a series of files such as the several opinions about how to standardize thestate-owned shareholders behavior of listed companies to strengthen the regulation ofthe state-owned shareholders and to regulate and constraint their behavior in corporategovernance. These backgrounds provide a good opportunity for the study of ownershipstructure and the level of cash holdings of the Chinese listed companies.This paper uses the theory of transaction cost, agency cost theory and so on toanalyze the relationship between the ownership structure and level of cash holdings,based on the data from year2007to2011of the non-financial listed companies after thecompletion of the non-tradable share reform. The paper select the share ratio of the firstlargest shareholder index which reflects the shareholding concentration and the ratio ofstate-owned shares index which reflects the shareholder type according to the ownershipstructure. The type of the Shareholders determines their behavior orientation, the degreeof shareholding concentration determines the capability of the shareholders to controlthe company, and this paper selects these two indexes to help optimize the governancestructure of the Chinese listed companies, regulate the behavior of cash holdings of thelisted companies and promote the healthy development of the capital market.This paper refers to the study method of Opler(1999) to build the hypothesistesting model, taking the level of cash holdings as the explained variable and the ratio of the first largest shareholder and the ratio of state-owned shares as explanatory variables.Then, it Combines control variables such as the company size, investment opportunities,financial leverage, bank debt to conduct linear regression analysis. The empirical studyfinds several conclusions. First, the level of cash holdings in China is obviously higher,but this high tendency doesn’t continuously increase or decrease, the level of cashholdings of the listed companies has volatility. Second, the level of cash holdings of thelisted companies in China is obviously different between industries. Third, the ratio ofthe first largest shareholder and the level of cash holdings have significant positiverelationship, large shareholders may still manipulate the funds of listed company at theexpense of the small and medium shareholders’ interests. Fourth, the ratio of theState-owned shares and the level of cash holdings have significant negative relationship,State-owned shareholders can play a role of good guidance and supervision in thecorporate governance after a series of policy implementation. Finally, this paper putsforward some related suggestions. First, optimize the ownership structure and promotethe reform of property right diversification, appropriately bring in the institutionalinvestors. Second, strengthen the incentives of managers and build effective managersmarket. Third, improve the internal governance environment, strengthen the protectionof shareholders, especially the minority shareholders. Fourth, make full use of theregulatory authorities and financial institutions such as banks to make the companykeep the optimal level of cash holdings.