Macro-credit Policy,cash Holdings And Corporate Investment

Cash is an important financial resources to the firms,and has important influence on many aspects,such as operating,investment and financing. Under the assumption of perfect capital market, the firms do not need to hold cash, however in the reality, the friction of the market and the defects of corporate governance make cash holdings become an important decisions.According to the information asymmetry theory and the pecking order theory,the defects of capital market lead to the higher external financing costs,and will increase the precautionary cash holdings,which could reduce the cost of financing and help the firms grasp the investment opportunities. In short,cash holdings is an important part of the liquidity risk management,and the cash holdings can supply the internal cash flow,which is a cheap and direct financing method. According to the existing studies,scholars usually use cash flow as the internal financing,but the cash holding has aroused general concern in recent times. Besides,the economy of China is in transition and the capital market is still immature,so that asymmetric information and agency problems are more serious and the listed firms are generally facing financing constraints. Therefore,it is meaningful to do in-depth analysis of the relationship among the cash holdings and the investment behavior of the listed companies. On the other hand,the firms of China mainly use bank loans as their external financing methods,and the bank loans are the most convenient and fast external methods even for the listed firms. However,the commercial banks in China are restricted by regulatory indicators, so that, under different credit policy,the bank are restricted at different levels and the firms face different supply of credit, and it is obviously that the firms will have different cash holdings policy and different investment behavior. At present,the domestic and foreign scholars often ignored the exogenous influences,and failed to put the macro-credit policies into their analysis framework.Therefore,this paper used the data of listed firms in our share market between 2008 and 2013 to explore how the listed firms manage their cash holdings to meet the need of investment under different credit policies. Firstly,this paper focused on the internal financing,and discussed the relationship among the cash holdings,cash flow and corporate investment. The results showed that cash held can alleviate the sensitivity of investment to cash flow; besides, cash holdings also stimulate more over-investment. Further,this paper considered the nature of equity of listed firms, and the results showed that the non-state-owned firms have relatively high cash holdings level and stronger precautionary motivation, and their cash holdings have stronger impact on investment-cash flow sensitivity; The state-owned firms have lower cash holdings due to light external financing constrain. In addition,cash holdings have positive influence on over-investment behavior no matter in state-owned or in non-state-owned listed firms,and it is more obviously in state-owned listed companies. This paper further considered the macro-credit policy into the analysis framework, attempting to reflect the degree of credit policy by the restriction of the commercial banks, and investigated how the listed firms with different nature used cash holdings to satisfy their investment under different credit policy. The results showed that the listed firms deal with investment demand through liquidity management will be stronger under the smaller credit scale, and the effect in the non-state-owned listed firms is more significant, but state-owned listed firms showed relatively insensitive to external credit policy; In addition, the tightening credit policy reduced positive influence on over-investment from cash holdings, and this phenomenon is more significant in the non-state-owned holding listed firms.