Environment Uncertainty, Financial Constraints And The Value Of Cash Holdings

Cash, regarded as the "blood" of the enterprise, has important strategic implications on the health operation and sustainable development of enterprise. In recent years, companies in both developed and developing countries are tending to hold large amounts of cash. This phenomenon draws the attention of many scholars, and it also makes the cash problems becoming the focus of academic research. As a basic financial concept, many scholars have studied the influencing factors of the value of cash holdings from the perspectives of the corporate internal governance and financial characteristics. Results show that the non-state-owned property rights, good corporation governance,perfect internal control system and high quality of information disclosure can improve the value of cash holdings. However, previous research on the effect factors of the value of cash holdings only pay attention to internal characteristics, rather than take external environment factors into concern,resulting in certain one-sidedness of the research.The global financial crisis in 2008 makes the external environment that enterprises face more complicated and volatile. The unpredictable changes in market has increased the uncertainty of enterprise daily business activities. Environmental uncertainty is mainly derived from the continuous and unpredictable changes in external market environment. The unpredictable and random behaviors of the market main body such as competitors and customers may also result in the uncertainty of environment. In addition, the uncertainty of the environment enterprises face will further aggravate the degree of information asymmetry, resulting to the increase of the enterprise's external financing costs. When external financing cost is higher than internal financing costs, there will form the financing constraints, which brings to the enterprises financing constraints. Besides, both domestic and foreign scholars have made empirical research on the relationship between the financing constraints and the value of cash holdings, generally believing that the financing constraints can raise the value of cash holdings. Therefore, this thesis aims at studying the effect of environment uncertainty on the value of cash holdings and the mediating role of financing constraints.This thesis raises three research hypothesis on the basis of theoretical analysis and select relevant variables, then systematically studies the effects which environmental uncertainty has on the value of cash holdings and its mechanism based on the financial constraints mediating effect using data from CH A-share companies in Shen Zhen and Shang Hai from 2010 to 2014. At last, combined with the position of cash holding, this thesis puts forward some corresponding recommendations. As the study shows, enterprise's cash holdings have a positive value effect; higher environmental uncertainty significantly enhances the value of the enterprise's cash holdings, which means cash given by investors hold a higher level of pricing when the company environmental uncertainty rises.Furthermore, financial constraints have a mediating effect on the impact which environmental uncertainty has on the value of cash holdings, which means corporate external financing costs caused by environmental uncertainty exacerbate financial constraints and cash holdings help to avoid financial risks and ensure effective investments. From a unique perspective, this article reveals the ways and mechanisms how environmental uncertainty and value of cash holdings are effected by financing constraints, to provide valuable reference for company managers subjected to financial constraints under environmental uncertainty to develop a reasonable cash holdings policy. This study also opens up a new perspective in further study of financing constraints and the value of cash holdings.