The Impact Of Customer Relationships On Corporate Cash Holdings

With the continuous increase in cash holdings of listed companies in China,Wind’sstatistics showed that China’s listed companies have significantly more cash holdings than some of the world’s developed countries’ listed companies.In the capital market,the company’s cash holdings are not the more the better.On the one hand,excessive cash holdings will bring the opportunity cost to the company,On the other hand,because of the existence of transaction costs,holding cash is also a negative impact on the company.As a result,cash holdings are critical to the company’s business development and corporate performance.Most of the research results showed that the increase in preventive motivation caused by financing constraints is a significant reason for the company’s cash holdings significantly more than before.Because customer relationships can influence financing constraints through external financing channels,which include commercial credit channels,bank loans and equity financing,customer relationships are bound to influence the company’s cash holdings through financing constraints.However,the existing literature have simply tested the impact of customer relationships on the company’s cash holdings.There is no theoretical framework for how customer relationships can influence their cash holdings through financing constraints.Nor does it clarify the specific path that customer relationships affect the company’s cash holdings.Therefore,this paper makes an in-depth theoretical analysis on the impact of customer relationship on the company’s cash holdings from the perspective of financing constraints firstly,and puts forward the hypothesis of this study.Secondly,using Chinese Listed manufacturing companies from 2001 to 2014 as the sample,evaluating customer relationships with customer relationship concentration and customer relationship volatility,making a empirical test of the impact of customer relationship on the company’s cash holdings,and examing the detailed mechanism and path of this impact.Further examining the economic consequences of customer relationships affecting corporate cash holdings from both corporate investment spending and corporate performance.The results show that the higher the customer concentration and the greater the customer volatility are,the higher the level of cash holdings is,and this relationship of companies facing financial constraints are more strong.This impact mechanism is that customer concentration and volatility can increase company external financing costs and increase itsinvestment-cash flow sensitivity.The specific path is that the higher the customer concentration is,the more commercial credit is provided to major commercial customers and less commercial credit is received from major customers,meanwhile the ability of the company to obtain bank loans are reduced;the bigger the customer volatility is,the more commercial credit is provided and received,and the former is larger than the latter,while it is more difficult to obtain bank loans.Further research found that customer concentration and customer volatility not only strengthened the company’s financing constraints,increased the company’s cash holdings,but also led to China’s listed companies to reduce investment spending,declined the company’s performance.