Research On The Relationship Between Corporate Diversification And Cash Holdings

Cash holdings are relatively strong liquidity assets for corporate, to a certain extent, can reflect the ability for resisting risks and repaying debt,It plays an important role on enterprise management and development. With the development of society and economy, diversified business model has become a strategic business in general operations. Because diversification can form its own internal capital market to achieve a certain degree of internal financing. Therefore it is of great significance to investigate the effect of diversification on the level of cash holdings and analysis from the perspective of the ultimate controlling person deeper. Before research on the impact of diversification for corporate cash holdings, First it is analyzed for Chinese listed company’s overall cash holdings conditions as well as the diversification. In order to study from the impact on the ultimate control person perspective, How does diversification affect the level of cash holdings, the regression model were established from the separation of ownership and control and the ultimate human character to analyze the results, and the model robustness testsThrough the empirical regression model analysis,we get the following conclusions:China’s listed companies cash holdings overall situation is relatively high, the number of diversification firms is also slightly higher. In the empirical study,It is found that the company’s cash holdings are lower for the diversified corporate than the professional business, Moreover, with the deepening of enterprise diversification, corporate cash holdings will be reduced, because the diversification can form internal capital market, to achieve a certain degree of internal financing,so corporate cash holdings as a result of the precautionary motive will decrease. Further study found that with the deepening separation of ownership and ultimate control, corporate diversification effect on the level of cash holdings will be weakened. And compared with non-state-owned enterprises, the effect on the diversification of state-owned enterprises will be reduced cash holdings. This is because as the deepening of the separation of ownership, especially state-owned enterprises, the agent will have a serious problem, the shareholders for their own self-serving motives strengthen corporate diversification decreased ability to optimize the allocation of resources.