Growth, Product Market Competition And The Value Effect Of Corporate Cash Holdings

Cash flow and product circulation are two important aspects of ordered and continuous running of industrial chain, products circulation capacity under the fierce market competition determines the corporate cash flow efficiency, and as company’s most liquid assets, cash and equivalents are the basis of corporate continuing operations in modern product market competition, but also the most easily to be occupied and transferred assets. Cash levels are direct result of corporate investment and financing decisions, and the economic environment and industry background is the key environmental influences to corporate investment and financing decisions, accounting policy choice and performance. As important representative factors of economic environment and industry background, growth and product market competition can enhance corporate governance efficiency and its cash holdings decision-making ability.Cash holdings decisions is a key link in the process of corporate financial decisions, industrial and corporate growth differences and product market competition as important dimensions or characteristic of the corporate fundamental business environment can significantly influence corporate financial decision-making and the value of cash holdings. This paper investigates the value of cash holdings effect by using Shanghai and Shenzhen A-shares in 2003-2013 annual data of listed companies, combined with the corporate and industry growth capability and product market competition under the endowment difference(financing constraints and the nature of property rights). The study shows that: corporate cash holdings has significant value effect, competition can promote the value effect of cash holdings by weakening the information asymmetry and inhibiting agency problem; corporate high-growth can promote the value effect of cash holdings, and the promoting effect is more significant in non-state-owned and higher financing constraints companies than others; growth is the key background environment to the value effect of cash holdings, corporate growth and competition shows a synergistic effect in the process of promoting value effect of cash holdings. Further research shows that: industry growth and competition don’t have significant synergistic effect, the company in faster growth and more fierce competitive industry which mainly consist of high and new technology industries have higher opportunity and management cost, in this situation, cash holdings does not has significant value effect.Contributions of this paper is mainly reflected in: First, industry and company of our country in emerging and transition economies are facing in the evolution of high-growth pressure, industrial and corporate growth directly affect corporate financial behavior, survival and development. The discrimination of industrial and corporate growth can help further understanding for inner relation between growth difference and corporate cash holdings behavior, also contribute to the existing research about the corporate cash holdings economic consequences; Second, industrial growth cycle evolution always accompanies with the development of the structure of the product market competition, resources endowment difference and limited product demand capacity are important characteristics of growth and product market competition on the corporate level, and elements/resources configuration preferences and industrial interaction and spillover effect are two important dimensions, the deeper consideration for growth difference(distinguish between industry and company), product market competition(distinguish between industry inside and outside) and value the effect of corporate cash holdings under the same framework can help corporate decision-making of cash optimization combine with its condition and industrial characteristics, also help to investigate the rationality of current industry structure and policy; Third, the research based on endowment difference shows that: the reform of state-owned enterprises to delegate powers and benefits can effectively enhance the value effect of cash holdings, nationalization reform from government leading and intervention to market leading, government supervision and industry adjustment is perhaps the most reasonable and effective path of reform.