Macroeconomic Condition, Financing Constraints And The Value Of Cash Holdings

Since the financial crisis in2008, scholars and the public focus on cross research of macroeconomic condition and the financial policy. There has been several studies which combined macroeconomic conditions and cash holding policy. But few scholars combine the value of cash hoding with macroeconomic condition.After reviewing the theory and literature of cash holding, we find that different theories about the value of cash holdings do not reach a consistent conclusion. This paper tries to combine the macroeconomic condition and cash holdings, exploring whether the value of cash holding will change in different macroeconomic situation. At the same time, we take the enterprises’financing constraints into account.Through empirical study, this paper find that enterprises tend to hold more cash during the economic downturn, and these cash holdings from precautionary motive can substitute for costly external financing, maintain the competition and improve enterprises’performance and value. So cash holdings are more valuable during the economic downturn than during the economic boom.After considering the enterprise’s financing constraints, we find the financing constraints are amplified during the economic downturn, so the company with high financing constraints can improve more value than the company with low financing constraints when holding cash.This paper researches the value of cash holding combined with macroeconomic condition and financing constraints, enriching and deepening the research findings in this area. In practical, the conclusion of this paper provides guidance to the company’s cash holdings behavior and also provides some suggestions to government.