Enterprises’ Dependence On Bank And Its Cash Holdings Policy

Cash holdings policy is one of the main policy of the enterprise management, due to different corporate financing environment and their various characteristics, which is resulting in differences in corporate cash holdings policy. Corporate reserves cash mainly used to carry out investment activities, production management, and prevention of contingencies. The reliance on bank, access to bank loans is an important prerequisite for enterprise production and business activities, deciding in investment scale, operation pattern and production efficiency. At the same time, companies that rely on bank loans will receive a certain external governance mechanism, as the largest creditor,bank affect corporate governance by debt covenants that bring to ease the agency problem, which contributes to positive effect on the value of cash holdings. However, the objective function of bank loans, bank supervision and bank-enterprise relationship are various, soft budget constraints and credit discrimination is still an important characteristic of bank credit. Compared to state-owned enterprises, non-state-owned enterprises received more stringent risk-supervision which lead non-state enterprises in relatively severe situation. Therefore, this paper that considered the property of enterprises, researched the relationship between enterprises’ reliance on bank and cash holdings policy.In this paper, by using a sample of listed companies in china from 2003-2013, combined theoretical analysis with empirical testing methods, we investigated the influence held by bank dependence on corporate cash holdings policy under different ownership nature. In this paper, corporate bank loans to total assets ratio represents companies’ reliance on bank loans( "dependence on bank"), we mainly find the results of enterprises’ dependence on bank that influence on cash movements and cash value. The main conclusions are as follows:Enterprises’ dependence on bank plays a positive role in cash movements, but different maturities affect this performance. Compared to the long-term dependence on bank, short-term dependence on bank influence cash movements more positive. Considering the nature of the property, compared to the state-owned group, in non-state-owned group,companies’ dependence influence cash movements more positive. In the study of cash value, compared to short-term dependence on bank, long-term dependence on bank influence cash value more positive, and this positive impact is mainly manifested in the non-state-owned enterprises. Further studies showed that the role of bank debt in corporate governance, produced positive impact on cash value mainly by reducing the agency problems of on-the-job consumption which were caused by cash holdings. This paper enriched the perspective of the relationship between bank debt and corporate cash holdings policy, and provided some inspirations to banks and other financial institutions, and also the related companies.