Industry Growth And Chinese Listed Company’s Cash Holdings

Cash holding policy is a vital important part of company’s financial decision. Based on the previous research about influencing factors of corporate cash holding, both domestic and foreign scholars have underlined the market value of cash holding through the perspectives of asymmetric information and agency problem, and nowadays, using the industrial organization theory, scholars tend to combine corporate cash holdings and its economic result with industrial traits. However, the recent literatures mainly exploring the relationship between product competition structures and corporate cash holdings ignored the influence of the other important industrial trait, industry growth.Using the data of Chinese A-share listed companies from 2003 to 2012 as samples, this paper found that industry growth has significantly positive influence on corporate cash holdings. In order to explain such a phenomenon, this paper, with the perspective of cash holdings’ competitive effect, firstly pointed out that capital investment shows an intermediate effect in the realization process of cash holdings’ competitive effect. Then, this paper found, industry growth can cause directly positive influence, based on investment opportunity, as while as indirectly positive influence, based on the “external financial constraint” pattern and the “cash flow risk” pattern, on the cash holdings’ competitive effect. After the analysis of the correlation between industry growth and corporate cash holdings, this paper proposed applications of two levels: firstly, aiming at companies external environment, this paper found that in the industries where the degree of competition is high, or in the areas where the level of financial development is low, the influence of industry growth on the level of corporate cash holding and its competitive effect is strengthened; secondly, as an application of political level, this paper found that the support from industry policy, causing the change of companies’ development opportunity, enhances the motivation of corporate cash holdings and its competitive effect, while with the increase of industry growth, the effect of industry policy is diminished. The further research found that, the competitive advantage achieved by cash holding in growth industries can significantly improve the firm’s value, while the competitive advantage achieved by cash holding in policy supported industries cannot show a significant improvement of firm’s value, and only when industry policy suiting industry growth, can cash holdings’ competitive effect translate into firms’ market value.Based on the above results, this paper can conclude the following revelations: firstly, as a key trait of industry, growth capacity determines companies’ development opportunity, and has relationship with companies’ external financial ability and cash flow risk. Hence, companies should consider its industry environment, determine its development decision, keep proper cash resource, and continually enhance and strengthen its product competitive advantage. In addition, Chinese industry policy constantly shoulders double responsibilities, employment and economy development, and there is a lack of information and ability, as while as rent-seeking behavior and corruption. The mismatch between industry policy and industry growth may drag the industry down, and evolved into “duel efficiency losses”. Hence, when government set policy, industry’s inner law and developing capacity should be underlined, and industry policy’s economic consequence should be systematically investigated. Only with such way, can we make sure an effective and continual modification and upgrade of China’s industry structure.