An Empirical Study Of Influences Of The Largest Shareholder Control On Company’s Cash Value

The cash holdings decision is an important financial decision-making in thecompany. It is a hot issue studied by a large number of scholars that the economicconsequences of cash holdings in the end is "value creation" or "value impairment.In recent years, domestic and foreign scholars expanded the related research of cashvalue from the perspective of free cash flow theory, static trade-off theory, peckingorder theory etc. The scope of the study also expanded from the company’s traitfactors to the impact of corporate governance characteristics, and t hen to the cashvalue of the Company under the different governance environment. In this paper,basing on the special shareholding structure, called the dominance, of listedcompanies in China, starting from perspective of "incentive effect "and" entrenchmenteffect ", as well as agency theory, the author deeply analyses how the proportion andnature of the largest shareholder affect cash value of the Company. In the same time,the author also studies the influence of checks and balances between the share holderson cash value.The conclusions of this study are as follows：First of all, the influences of thelargest shareholders’ proportion on cash value are affected by financial constraintscaused by the moral hazard. When there are no financing constraints, the proportionof the largest shareholder shows a significant inverted U-shaped relationship with thecompany’s cash value; When there are financial constraints, the U-shaped relationshipbetween the largest shareholder and company’s cash value is not significant, but it canbe seen that in companies with a high degree of financing constraints, theperformance of the largest shareholder of the company’s cash value is "encroachmenteffect", The cash value is lower. In addition, the influence of the proportion of thelargest shareholder on cash value shows a range effect, namely the relationshipbetween the proportion of the largest shareholder and the cash value of the Companyis an M-type relationship. Secondly, the government nature of the largest shareholderwill weaken the positive effect of cash holdings on firm value, as opposed tonon-government-controlled company, in government-controlled companies, thebehaviors of the largest shareholder show as "entrenchment effect, cash value islower. Finally, when there is no financing constraints caused by moral hazard of thelargest shareholder, the ownership balancing can effectively improve the company’scash value; And only when the largest shareholder stake to a controlling level but did not reach the level of absolute control, the ownership balancing can effectively inhibitthe largest shareholder’s expropriation, to improve the company’s cash value.The conclusions of this study will further enrich the research findings of theimpact of corporate governance standards on cash value under the background of ourcountry system. It can also provide a basis for the optimization of corporate cashholdings decisions.