A Study On The Impact Of Enterprise Diversification On Cash Holdings

Cash is the “blood” which supports the survival and development of a corporation,which spurs many managers and investors to playing more attention on the behavior ofthe corporate cash holdings and its influencing factors. The business diversification isan important development strategy, and its implementation has a significant impact onthe operations of the corporation. Exploring whether and what kind of influence doesthe implementation of business diversification strategy on its cash holding behaviorwould have, it has important significances to the effective development andimplementation of diversification strategy, standardization of cash holdings andpreventing cash holdings crisis.Based on the review of the theory of diversification and cash holdings, first of all,this paper discusses the theory of enterprise diversification’s impact on cash holdingsfrom the degree of diversification and diversified types, and cash holdings and cashholdings dynamically adjusting. Then this paper makes an empirical research on theimpact of degree of diversification and types of diversification on cash holdings. At last,this paper empirically testes and verifies the existence of the business of cash holdings’dynamic adjustment behavior, and empirically analyzes the impact of the diversificationdegree and diversification types on the dynamically adjusting of cash holdings.The empirical results of diversification effect on corporate cash holdings show thathighly diversified enterprises are often with more cash holdings. Related diversificationand unrelated diversification both produce a positive impact on corporate cash holdings,but compared to the unrelated diversification, the related diversification has greatereffects on corporate cash holdings. The empirical results of the diversification effect oncash holdings adjustment show that within a certain range, diversification degree doesnot have a significant impact to cash holdings adjustment. Related diversification ofcorporate cash holdings has significant positive influence on dynamic adjustment,unrelated diversification of corporate cash holdings has a negative impact on dynamicadjustment, but the effect is not significant.