The Effects Of Information Asymmetry On Cash Holding Behavior And Value Of Listed Companies In China

The issue of a company’s cash holdings is currently a hot issue in corporate finance research. As early as 1970, Fama (1970) proposed an Efficient Market Hypothesis in his research on resource allocation, which implied that investors, without involving additional cost, can easily get the equal amount of information of equal quality as the management of the company. But in the real market environment, the information is asymmetric, the company management has a better understanding of the company’s development and risk and other information than external investors. Current studies have not reached a unified conclusion. Moreover, no one has ever studied from the perspective of information asymmetry.However, it’s rather difficult to quantify information asymmetry. Researchers have made much exploratory research and testing on proxy variables of information asymmetry. Different indexes for measuring information asymmetry generated disparate study results, meanwhile, they also left space and opportunity for further studies. So the problem is whether we can measure the level of information asymmetry from multiple angles and research the level of cash holdings of companies, and then analyze the value of cash holdings? In order to solve this problem, our study based on the trade-off theory, Pecking Order theory, Asymmetric Information theory, Free cash flow theory and Principal-agency theory,and take listed companies in China as samples, try to explore the effect of information asymmetry on the cash holdings with a couple of theories. The basic approach is to explain the effect of information asymmetry on the cash holdings:on the one hand, a relatively high level of information asymmetry implies a relatively high degree of financing constraints. When the company is faced with a high degree of financing constraints, the management may have held a large amount of cash in the previous period for self-serving purposes, which contributes to decreasing in the value of cash holdings; On the other hand, the higher the level of information asymmetry a company keeps, the higher financing cost the company encounters with or faces, and the smaller available cash flow is, so it is reasonable to consider that the cash held in firm has a positive effect on the company.Our study shows that:the company’s cash holding behaviors have significant positive correlation with the degree of information asymmetry, that is to say, the higher the degree of information asymmetry, the higher the level of cash holdings, managers tend to waste the company money; the value of a company’s cash holdings rises with the increase of cash held in firm, but the marginal value of cash will diminish due to the increase in the cash holdings; information asymmetry has a negative impact on the company’s cash value, the higher the level of information asymmetry a company stays at, the lower the value of its cash holdings is; With the increase in terms of the level of information asymmetry, the marginal value of cash discounts further; and the relationship between the agency costs caused by information asymmetry and the value of cash holdings is not a simple monotonous one. This study not only embodies a new research Angle of view and ideas, also provides a reference to the financial decision for the companies in our country.