Research On The Relationship Between Growth Opportunity And Cash Holdings Of Listed Companies

For the company itself, the company can’t keep on operating without the cash. Once the cash chain can’t meet its daily business and investment expenditures in the company, it means that the company may fall into financial distress. Cash holdings is an important issue not only in the company’s management, but also in domestic and foreign financial theory. Foreign researchers have explored the firm’s cash holdings in various aspects, and put forward the Trade-off Theory、Pecking Order Theory and Agency Cost Theory. Previous academic studies showed that there are many factors affecting the firm’s cash holdings, such as corporate financial characteristics, governance or competition in the industry and so on. Since the firm as an economic unit closely linked with the environment, including the exchange of goods and capital. It can’t explain the influence well on firm’s cash holdings that we pay attention to internal firm financial factors unilaterally. In this article, we research on the relationship between the growth opportunity and firm’s cash holdings. Simultaneously we take the impact of monetary policy into consideration. And the exogenous monetary policy can effectively avoid the problem of endogeneity in the model.Based on the above background, first, this paper reviews the previous literature about cash holdings, growth opportunities and monetary policy transmission channels, then it summarizes the findings and the status quo to learn ideas and methods of the study. Second,this paper summarizes relevant theories and hypotheses, On this basis, this paper chooses 973 companies among A-share listed companies, and uses their balanced panel data in the period from 2007 to 2014 to construct the empirical model. This paper uses book ratio(Market-to-Book) as a proxy for the company’s growth opportunities and uses monetary policy(MP) by the form of dummy variables in the empirical model. Firstly, this paper establishes a model about the relationship between the growth opportunity and firm’s cash holdings. Secondly, considering the effect of listed companies’ ownership on the relationship between growth opportunities and the company’s cash holdings, this paper has further classification in listed companies by the ownership, and then it explores comparative analysis between state-owned enterprises and private enterprises. Finally, this paper introduces the monetary policy as an adjustment variable. Then, considering the moderating effect of monetary policy, we study the real relationship between the growth opportunities and firm’s cash holdings. The empirical results show that(1) Listed company’s growth opportunities are significantly positive with the cash holdings. It means the more company’s growth opportunity, the more its cash holdings.(2)The degree of positive relevance between growth opportunity and firm’s cash holdings in private company is larger than the relevance in state-owned company.(3)The positive relevance between growth opportunity and firm’s cash holdings is stronger in the monetary tightening phase than the relevance in the monetary easing phase. It mainly due to not only high-growth opportunity companies but low-growth opportunity companies are facing financial constraints in the monetary tightening phase, especially for the high-growth opportunity companies. Listed company will hold higher cash levels in the precautionary motive.