An Empirical Analysis Of The Impact Of Excess Cash Holdings On Enterprise Value

The valuation of enterprise is an important part of asset appraisal.Among them,the impact of cash assets on corporate value is controversial.Previous studies have shown that excess cash holding may have a positive or negative impact on the value of the enterprise.Most of the literature only studied the effect of excess cash holding that caused by financial policy,enterprise system,the degree of financing constraints and principal-agent problems on enterprise value.This paper argues that in different industry life cycle,there are difference among the company's investment opportunities,growth space,market scale and other features.Therefore,how many cash holding can maximize the value of the enterprise in different industry life cycle is different too.On the basis of the study of the impact of cash holding on enterprise value,this paper theoretically and empirically investigated how the cash holding will impact the value of an enterprise in a different life cycle.This enriches the valuation system of enterprise value.In the first place,this paper described the background,significance and purpose of the research.Secondly,this paper introduced and summarized the recent research about excess cash holdings,enterprise value and industry life cycle.Thirdly,this paper made a reasonable hypotheses based on the relevant literatures that the excess of cash holding cash has different impact on enterprise value for companies in the industry of growth and decline.The industry life cycle was divided according to the change trend of growth rates.I selected two of the growth industries and two of the recession industries.The data of the listed companies in the industries were fitted with the panel data using the excess cash holding model and the enterprise value model.Then,this paper analyzed what kind of impacts the excess cash of companies in different life cycles will bring to their value.Finally,a robust test was performed for the results using substitution variables and replacement of sample data.Through empirical analysis,it is found that excess cash holding level has different influence on enterprise value for enterprises in different industry life cycle.This influence is significant.For enterprises in growing stage,the excess cash holding is positively correlated with enterprise value.For enterprises in a recession,the excess cash holdings are negatively correlated with enterprise value.The reasons are analyzed from the perspective of financing constraints,principal-agent problems and principal-agent problems.In the end,Corresponding suggestions for reference have been proposed to investors,assessment agencies,corporate agents,business owners and various regulatory bodies in financial markets.