Research On The Impact Of A+H Cross-listings Excess Cash On Firm Value

The decision of cash holding is one of the most important financial decision forfirms, which is related to firms’ development and even survival. Nowadays,increasing firms choose to hold more cash. Some theories believe excess cash has abad effect on firm value because of agency problem and governance condition.However, the level of company governance of A+H cross-listings differs from thoseof non-cross-listings, since they suffer from supervision and management of twomarket at the same time. Therefore, A+H cross-listings’ excess cash is supposed tohave a different effect on firm value. This article chooses excess cash holding as studyperspective, uses data of2008-2012A share listed firms, firstly calculate excess cashreferring to Opler(1999) empirical model, secondly use Dittmar(2007) model toexamine the relationship between excess cash and firm value of A+H cross-listings.The main conclusions of this article are following:(1)For A share listed firms, positive excess cash has a negative effect on firmvalue. This is because excess cash is an unreasonable asset allocation, andmanagement layer is easy to put these cash into less efficient field, such as badinvestment and self-consumption because of bad agency problem and investorprotection. Then, firm value has been affected.(2)This kind of negative effect will bealleviated in A+H cross-listings. This is because A+H cross-listings are under H sharemarket’s stricter governance environment, agency problem is eased and investorprotection is enhanced. Less efficient use of cash has been restricted. But agencyproblem cannot be eradicated, and unreasonable use of cash, which is contradictedwith shareholders’ interests, still remains. As a result, negative effect excess cash putsonto the firm value still exists.The conclusions will help firm managers, share investors and market supervisors.For firm managers, it could become a reference when cash decision is made, and pressmanagers to use cash rationally. For share investors, it could be a new perspective to think of a share’s risk, help investors avoid wrong investment decision. For marketsupervisors, it reflects the bad governance of domestic share market. The necessityand urgency of governance improvement of share market are raised.