Industry Competitive Pressure,Manager Overconfidence And Corporate Cash Holdings

Cash is an important asset of an enterprise,which reflects the financial situation and operating performance of the enterprise.It also affects the investment and financing decision-making of the enterprise,and even relates to the survival and development of the enterprise in the future.However,as the most liquid assets of enterprises,cash is easy to be manipulated externally.According to the trade-off theory,the insufficiency and excessive cash holding level of enterprises will affect the performance of enterprises.Low cash holdings will bring high external financing costs and opportunity costs that can't meet the needs of investment projects,which may lead to the breakdown of capital flow.Excessive cash holdings will lead to principal-agent problems.Agents seek private benefits for themselves based on the information advantages obtained by the separation of two powers,so that the cash holding performance of enterprises decreases with the increase of cash holding level.Therefore,under the background of the rapid change of the external environment and the increasing competitive pressure of the industry,how to deal with the external challenges,determine the level of cash holding rationally,and formulate cash holding plans to achieve higher cash performance are the difficulties that every enterprise must face.Existing studies have shown that changes in corporate financial indicators,corporate governance and external environment will affect the level and value of corporate cash holdings.However,the related research pays more attention to the changes of financial indicators and the uncertainty of macroeconomic and political environment,while the research on the external governance mechanism effect of industry competition pressure is relatively less.The existing research also comes from the hypothesis of rational economic man,ignoring the understanding of managers' irrational decision-making.Today,with the changing internal and external environment,especially in the new stage of behavioral economics,the motivation of corporate cash holdings is bound to have new development.It is of great significance to further explore corporate cash holdings based on previous studies.Therefore,based on the institutional background of China's listed companies,this paper uses the perspective of combining behavioral theory with external pressure to explore the relationship between industry competitive pressure,Managerial Overconfidence and corporate cash holding level and value.This paper chooses the data of A-share listed companies in Shanghai and Shenzhen Stock Exchanges from 2013 to 2017 as samples,puts forward hypotheses based on tradeoff theory,principal-agent theory and financing priority theory,and makes empirical tests using multiple regression model.The results show that: 1.Industry competition pressure is negatively correlated with corporate cash holdings.Industry competition pressure can reduce agency conflicts through performance monitoring of external competitors,weaken managers' motivation to hold high amounts of free cash to meet private consumption,and reduce the level of cash holding of enterprises.2.Under the competitive pressure of the same industry,overconfident managers will make relatively lower level cash holding plans.Overconfident managers will make cash decisions with lower holding level based on the psychological impact of industry competition pressure,enhance the negative impact of industry competition pressure on enterprise cash holding level.3.There is a significant negative correlation between corporate cash holdings and corporate value.Based on principal-agent theory,high-level corporate cash holdings are more for managers' private purposes.4.Under the regulation of industry competition pressure,corporate cash holding level is positively correlated with corporate value.When the competitive pressure of industry leads to the reduction of low-price cash holdings due to principal-agent theory,the value of cash holdings will increase because of the tradeoff between the cost and benefit of cash holdings and the consideration of external financing costs.5.Under the regulation of industry competition pressure,the cash holding level of overconfident managers is positively correlated with enterprise value.Under the pressure of strong industry competition,overconfident managers are more likely to choose to work harder because of overestimating their ability to work,and they will have more motivation to improve enterprise performance.Non-overconfident managers may be more cautious,and external industry competition pressure has less impact on them.This study enriches the theory of industry competitive pressure in the application field,provides a new way of thinking for the management of enterprise cash holdings.It is convenient for enterprises to formulate the level of enterprise cash holdings according to the level of industry competitive pressure and the characteristics of managers.The conclusion of this paper also supplements the relevant research on the relationship between manager overconfidence and cash holding,which helps enterprises to treat managers' overconfidence reasonably.