The Impact Of Accounting Conservatism On Cash Holding And The Value Of Cash Holding

ABSTRACT:Proper cash-holding is a prerequisite for enterprise to maintain daily operations and transactions. Therefore, decisions about cash holdings are very important for a company. As one of ten major unsolved problems during the financial profession, cash holdings is not only closely related to daily management and operation, but also linked with the enterprise’s investment, financing and dividend payments, etc. Cash holding is the key factor about the survival and development of a corporation. Foreign scholars research the influence factors of the cash holdings from the motivation theory, balance theory, the financing order theory and agency cost theory and have reached crucial research results. Compared with foreign research, domestic empirical study of cash holding is still stay in the exploratory stage. In addition, which of the above theory can better explain the cash holdings of listed companies in China is also worth exploring.Based on the optimal sequence financing theory, agency theory and free cash flow theory. This paper studies the cash holdings of listed companies. As for cash holdings, from the point of view of cash holdings, the existence of information asymmetry makes external financing cost higher than the internal financing cost. Companies face of financing constraints prefer keeping cash to meet future investment spending. While, from the point of agency theory and free cash flow theory, managements and shareholders do not agree with each other. Managers tend to hold more cash for private gain. In other words, both the optimal sequence financing theory and agency theory agree that managers are willing to hold more cash. Then, as for the value of cash holdings, under the theory of optimal sequence financing, cash holding, the more the better, is at a premium. However, under the agency theory, cash holding is the behavior of management to seek personal gain, and the increase of cash holdings is a process of value destruction.Research on accounting conservatism economic consequences is an important research topic in academia at home and abroad in recent years. But, direct inspection about accounting conservatism and cash holdings have not got much attention and research both at home and abroad. The existence of the robustness can decrease the degree of information asymmetry of both inside and outside, then reduce the enterprise’s external financing cost. Besides, accounting robustness can ease the agency conflict between shareholders and management. Based on this point, how does accounting conservatism affects cash holdings behavior?This paper selects all the a-share market data from2010to2013as the research sample, using the empirical tests to examine the impact of the accounting robustness to the cash holdings and cash value. It turns out that accounting conservatism is negatively related to the cash holdings, and positively related to the value of cash holdings.