The Study On The Relationship Of Cash Holding And Volatility Of Cash Flow Under Financing Constraints

Today the tools for financing is enrich gradually, but relative to the company the total financing demand, money supply is still inadequate, companies need to pay for the cost of financing, so a large number of companies choose to hold a certain amount of cash as a means of internal financing of the company, so how to use the cash effectively is an important problem.Based on the uncertainty of cash flow sensitivity of cash and lack of related theory and model, this paper adds the cash holding and cash flow two variables based on the research of Almeida (2004), we find out when will the firms exhibit cash flow sensitivity of cash, then we use data to examine the applicability of our conclusion and based on the examination we research the influence of cash flow volatility on cash holdings. The study of the paper shows that:(1) the financial constrained firms has a positive cash flow sensitivity of cash, while the non-financial constrained firms do not;(2) constrained firms increase their cash holdings in response to increases in cash flow volatility. However, there is no systematic relationship between cash holdings and cash flow volatility for unconstrained firms; (3) no matter whether the financing constraints the cash holdings of firms are sensitive to cash flow when cash flow is negative, but only the cash holdings of financial constrained firms are sensitive to cash flow when cash flow is positive.