Investor Protection,Managerial Entrenchment And Excess Cash Holdings

Cash holding decision is an important corporate financial decision.Based on the tradeoff theory,corporates will balance the cost and benefit of cash and decide an op-timal level of cash holding.However,managerial entrenchment will break the balance,make actual cash level deviate from the optimal level and result in excess cash hold-ing.Based on above analysis,the article studied how managerial entrenchment influ-enced cash holding under different directions of excess cash holding and property rights.Meanwhile,considered that investor protection is an external governance mechanism which can reduce the agent cost and prompt an improvement in corporate governance level,the article examined the moderating effect of investor protection.The article first teased out the theories and literatures related to cash holding,managerial entrenchment and investor protection,building a theoretical foundation for the subsequent research.Then it analyzed the relationship between the three variables above and proposed relative hypothesis.Finally,it examined the hypothesis through multiple linear regression.The article reached following conclusions:(1)The phe-nomenon of managerial entrenchment generally existed among the managers of listed companies.No matter corporates had positive or negative excess cash holding,the higher managerial entrenchment was,the more cash managers accumulated.(2)In those corporates which had positive excess cash holding,investor protection could constraint managerial entrenchment from accumulating cash.While in the corporates which had negative excess cash holding,investor protection didn't have a significant moderating effect.(3)Compared with private enterprises,in state-owned enterprises,managerial entrenchment influenced excess cash holding more significantly while in-vestor protection could not constraint managerial entrenchment.(4)Among private enterprises,the moderating effect of investor protection was stronger in those compa-nies which had positive excess cash holding.The research specified the influence direction of managerial entrenchment on corporate cash holding under different excess cash holding directions and property rights,extending the literatures related to cash holding.Meanwhile,it examined the moderating effect of investor protection,providing references and advices on the im-provement of relative laws and regulations and restraining managerial entrenchment.