Cash Holdings,Firm Investment And Product Market Competitiveness

With the outbreak of the financial crisis in 2008, enterprises and scholars are paying more attention to the role of cash holdings. Most existing research of cash holdings focused on the influence factors and the economic consequences of cash holdings, some scholars have began to research the influence of cash holdings on product market competition, but there is no literature studies that which channels cash makes sense through.This thesis from the perspective of investment spending studies the mediation role of it in the cash holdings’ strategic effect. We use the 2001-2013 a-share non-financial listed companies as samples and researches the relationship between cash holdings and product market competition. We test the mediation effect of investment spending in the cash holdings’ strategic effect using recursive model. In further study, this thesis testes different cash holdings’ strategic effects under different investment opportunities.The empirical results show that cash holdings positively affects firm’s product market performance. At the same time, investment spending have partial mediation effect in it. Finally, only under huge investment opportunities, cash holdings has positive effect on product market advantage, if the investment opportunity is small, high cash holdings would lead agency problems such as abuse of cash, excessive investment and so on. And under the same opportunity, compared with low cash holdings, high cash holdings can make firm bigger market share and better market performance.Overall, this thesis deeply studies the effect of cash holdings on product market competitiveness, proves that investment spending plays a important role of cash holdings’ strategic effect. The result replenishes the relevant research and helps enterprises adjust their cash policies.