Research On The Influence Of Earnings Quality To Cash Holdings

As blood of the company, cash permeates all the aspects of the producing andmanaging activities. It is both the precondition for the survival and development ofthe company, and the ultimate purpose for production activities of the company.Cash holding decision is not only an important subject in financial field, but also afinancial strategy involving the future of enterprise. Earnings quality as animportant component of the information disclosure may lead to informationasymmetry and agency cost, then affect the cash holdings of company. Therefore,Research on cash holdings behavior of listed companies from the perspective ofearnings quality has theoretical significance and practical significance.Based on analys ising the related theory of earnings quality and cash holdings,exploring the mechanism of earnings quality on cash holdings. It is theorized,different parts of the earnings quality has different effects on cash holdings.According to the cash holdings theory, business performance will influence the cashholdings directly, the innate earnings quality is an important measure index ofbusiness performance and profitability, directly impacting cash holdings. Accordingto the asymmetric information theory, agency cost which is caused by theinformation asymmetry will caused great influences on cash holdings of company.By influencing the intermediate variable information asymmetry, discretionaryearnings quality will have an indirect effect on cash holdings. According to theabove theory, choosing the indicators of earnings quality, cash holding and controlvariables, then constructing the model of cash holdings. Selecting a-share listedcompanies which except financial as samples from2005to2011. According to thedifferent attributes of earnings quality, using the DD model divided earnings qualityinto two parts, which is innate earnings quality and discretionary earnings quality,using correlation analys is and multiple linear regression analysis, to verify theeffect of earnings quality on cash holdings.The empirical results show that significant negative correlation between innateearnings quality and cash holdings, the higher innate earnings quality, the bettertheir financia l health, the lower cost of external financing needs, company willchoose to reduce cash holdings. Significant positive correlation between discretionary earnings quality and cash holdings, the higher discretionary earningsquality, the higher level of information asymmetry, the earnings will be morepossibility manipulated, company will choose to increase cash holdings. Withrespect to discretionary earnings quality relative to the discretionary earningsquality, innate earnings quality has more significant influnce on cash holdingsbehavior, suggests that investors have the ability to identify real earnings quality.The results shows that improving the earnings quality will be helpful to decrease thedegree of information asymmetry and agency cost, to improve the efficiency ofallocation of cash asset. Therefore, listed companies should establish a completeinformation disclosure system to improve the transparency of earnings information.