The Strategic Effect Of Excess Cash Holding On Product Market

In recent years, under the background of the global economic crisis, some enterprises fall into financial crisis even on the verge of bankruptcy because of the capital chain rupture; While other enterprise with abundant cash flow seize the market opportunities, merger and acquisition. Now, the significance of financial flexibility and excess cash holding has been widely received. Under this background, researching the relationship between excess cash holdings and Chinese listed companies’market competitiveness has important theoretical significance and practical demands.Throughout the domestic and foreign literature, the existing research mainly focused on motivation and affecting factors of the excess cash holdings for the consequences of excess cash holdings especially the relationship between excess cash holdings and corporates’product market performance has not been reach a consistent and clear conclusion. Existing research is based on pecking order theory, trade-off theory, strategic value theory and agency theory and find there are a either negative or positive monotone linear relationship between the excess cash holdings and corporate product market performance ignoring the influence of different industry environment and system background. Based on the classical theory and special institutional background and market environment in our country, the auther try to find the real relationship between excess cash holdings and market performance or market competitiveness through the theoretical analysis and empirical research. The thesis will test empirically if relevant classical theory abroad can be applied in our country and try to put forward new views in the field where empirical research is relatively scarce and different people may have different results.Through this thesis, the auther hope to provide useful suggestions for Chinese listed companies to formulate reasonable cash decisions and improve their market performance and market competitiveness.The thesis use the empirical research methods such as descriptive statistics,multivariate regression analysis and robustness tests, to research the the relationship between excess cash holdings and the enterprises’market competitiveness and performance. In excess of the relationship with the enterprise market competitiveness, the empirical results show that there is a significant inverted U relationship between them. The enterprises’market competitiveness improves as the level of excess cash holding rises within a certain range and declines if the level of excess cash holding beyond such range. And comparing to the competitive industry, excess cash holding has a more significant influence on the enterprises in oligopolistic industries. The fierce market competition can to some extent, reduce the agency cost. In excess of the relationship with product market performance, the auther find significantly positive correlation between them, in addition, the thesis also validate that excess cash holding can increase the enterprises’ability to afford capitalization spending such us purchasing fixed assets, intangible assets and other long-term assets which can help enterprise to grasp the future investment and development opportunities, thus improve enterprises’product market performance.The innovation point of the thesis is researching the strategic effect of financial flexibility from the perspective of the excess cash holdings and combined with the special institutional background and market environment in our country. And the auther consider the influence of different industries characteristics of our country and control the other factors that may affect the enterprises’market competitiveness to make the empirical results more scientific and reasonable.