The Effects Of Corporate Cash Holdings On Product Market Competition

In recent years the issues of corporate cash holdings has aroused more and more theorists’and practitioners’ interests, which can be witnessed particularly after the2007-2009financial crisis."cash is king " become the principle of the management of many companies. In post financial crisis days, risk of cash flow has been increased by cut-throat competition.and market environment changes to a much more complicated and unpredicted one,Therefore, cash holdings play a crucial role in corporate transformation and actions which are taken to confront challenges and make the best of good chances.Many world class first-class large companies are holding a huge amount of cash, so are domestic listed companies. How does cash holdings affect company’s expansion and market capability in the future? Fresard (2010),among those who firstly explored cash holdings’ strategic role, empirically tested the effects cash holdings had on the company’s product market performance and its rival companies’ product market behaviorHowever, previous financial studies mostly find that cash holdings are negatively related with investment. Harford et al(2008) pointed out that when the company has lots of cash, managers will put cash on company acquisitions or investments, thereby reducing the company’s cash holdings, in order to further expand market share. In the meanwhile, cash holdings decline, this negative relationship between cash holdings and investments is obvious among those growing rapidly companies..So the cash holdings and market share is negatively related.Corporate governance is another perspective from which we can study the effects which cash holdings, corporate governance theory holds that the ownership and management are separate, the interests of managers and shareholders are not always consistent under the assumption of economic man, company’s managers are not always pursue the maximizations interests of shareholders’ rights, but often the pursuit of the maximization of its own interests. Only when the corporate governance is good will the cash be used properly rather than become the managers’ tool to earn money for themselves.Therefore, if a company corporate governance level is good, the cash can be used efficiency, and the company can gain more market shares.This paper based on Fresard(2010) and Harford et al(2008) research,, empirically studies the effects which cash holdings have on product market performance from a corporate governance perspective. Part of China’s listed companies are used as data sample to discusses the relationship between company cash holdings and future product market share, furthermore, empirically analyzes the moderating effect which corporate governance has on the above main relationship.The study shows that corporate cash holdings and future market share are negatively related, which in contradiction to Fresard (2010)’s findings, we explain this contradiction by the difference of the time span of the data sample used in our research. he moderative effect which corporate governance has on the relationship between company cash holding and future product market share supports our hypothesis, which is the better the corporate governance is, the stronger the main relationship between cash holdings and future product market share is...