Product Market Competition, Board Characteristics And Corporate Cash Holdings

Cash held by one of the most important decisions are corporate financialstrategy. Corporate cash holdings by what factor has been widespread concern ofscholars, from pure research to later combine the financial characteristics of thecorporate governance study its effect on cash holdings. With the deepening of thestudy, the study found that in addition to the cash held by companies affected byinternal corporate governance mechanisms, are more susceptible to external marketenvironment and, therefore, this article will introduce the study of product marketcompetition factors on cash held in for a more scientific and rational explanation ofthe behavior of corporate cash holdings.In this paper, the competition, the Board characterized the relationship withcorporate cash holdings of the relevant product market theory of corporategovernance, corporate finance and so on. Select the2007-20117888sampleobservations, using regression analysis, the size of the board, independence,leadership structure, incentive compensation, ownership, board meetings as anexplanatory variable to study its competition in product markets under the influenceof how the impact on cash holdings. Cash as a liquidity strongest gains of the lowestkind of assets, the company’s managers for their own interests a lot easier to holdcash. Study found that product market competition can play an important role as anexternal corporate governance, while the more intense market competition, lowercash holding companies, indicating the product market competition can play its roleto alleviate the agency costs of enterprises, improve company efficiency. Also, thisstudy found that the size of (1) the Board companies face lower product marketcompetition, corporate cash holdings and significant negative correlation, indicatingthat the larger the size of the board, resulting in a positive benefit, reducing the cashheld by the enterprise;(2) the proportion of independent directors of the Board, thecombination of product market competition factors, the impact on corporate cashholdings are not significant, reflecting the truly independent directors have not beenable to play a benefit, there is no significant impact on corporate cash holdings;(3)the Board two jobs-one situation at the lower level of the enterprise product marketcompetition, a significant positive correlation with corporate cash holdings,indicating that the two roles-one will reduce the efficiency of corporate governance,easily lead to hold large amounts of cash management behavior, as benefit managersthemselves provide convenient conditions;(4) the Board remuneration in companiesface when lower product market competition, corporate cash holdings with asignificant negative correlation. Description competition in the product market, thedirectors remuneration incentives can play a role in helping to reduce corporate cashholdings; proportion (5) The Board shareholdings in companies face when productmarket competition is low, and cash holdings significantly correlated, indicating thatthe Board of Directors harmful effects of dumping holdings may exist, is notconducive to business supervision, resulting in increased corporate cash holdings. (6) Number of Board meetings when faced with lower product market competition,the relationship with the corporate cash holdings are not significant, indicating thatthe more the number of the Board, may not be able to produce positive results.Based on the results of this paper, we propose the following constructivesuggestions, on the one hand, the government should give full play to the role ofproduct market competition in the configuration of resources, the introduction ofmarket competition mechanism, so that the market economy more dynamic; hand,enterprises must rely on product market competition mechanism, the power into theirown development, optimizing capital allocation; while enterprises should improvethe company’s internal governance and improve corporate performance.