The Effects Of Supplier/Customer Concentration On Cash Holding Of Listed Manufacturing Companies In China

Supplier/customer relationships is important to the company’s stakeholders, they have adecisive influence on many aspects of the company’s strategic, business and so on (Freeman，1984),therefore, the company has a strong incentive to establish long-term cooperativerelationships with them. However, in reality, the establishment of such a long-termcooperative relationships, such as the presence of specific assets, will generate a lot oftransaction costs, so companies have an incentive to hold large amounts of cash preventingother opportunistic behavior. On the other hand, the establishment of such a long-termrelationships, you may want to perform, such as ongoing service and other implicit contract,and therefore the burden of hidden liabilities that increased financial risks facing the company,which allows the company tends to hold more cash to avoid itself fall into financial trouble. Inaddition, companies are generally reluctant to those companies dealing in financial difficulties,the cost of bankruptcy because customers or suppliers may make the burden associated with(Maksimovic and Titman,1991), Company in order to maintain this long-term relationships toeach other tend to pass their own financial situation in good condition signal, therefore, thecompany may hold more cash to show their well financial condition. Also, because of theclose ties of natural and government-owned company will make its priority in the allocationof scarce government resources, state-owned companies’ and non-state-owned companies’ability to cope with the opportunistic behavior of other side is significantly different.Accordingly, this article from the theory and the theory of cash holdings of transactioncost economics of departure, using the Shanghai Stock Exchange and Shenzhen StockExchange A share of all listed companies in the manufacturing sector between2007-2012as asample, learn on cash holdings factors model and combined with China’s reality, to study theeffects of the relationships between supplier/customer concentration and the cash holdings.The study found that a significant positive correlation between the concentration ofcustomers and the company’s cash holdings; state-owned listed company’s between supplierand customer concentration and the company’s cash holdings is weak; in the state-ownedcompanies, the use of state-owned shares stake to measure the degree of difficulty thecompany received government support, with the increased stake of state-owned shares, a positive correlation between the concentration of customers and the company’s cash holdingsis waning. It can be seen that if the company can get government support, so compared toother companies will not have a strong precautionary motive to hold more cash to preventbreach of its key customers. However, empirical analysis, did not find a positive correlationbetween the concentration of suppliers and corporate cash holdings.The conclusions of this article on the effects of supplier/customer relationships on cashholding are from a new perspective enrich our cash holdings factors empirical evidence.