Will Cash Holding Affect The Cost Of Equity Capital?

The cash is in the company like the blood to the human body,running through the company's production and operation.Many companies have embraced the concept of “cash is king” and tend to hold more and more cash,which has led to extensive research on cash holdings by domestic and foreign scholars.The company holds a certain amount of cash to maintain the company's normal operation and reduce the risk of capital chain breaks,but at the same time cash as an inefficient,low-yield asset,holding too much cash will also adversely affect the company's development.Modern company financial theory believes that the ultimate goal of the company's operation and management is to maximize shareholder wealth,which is also equivalent to the minimum cost of equity capital.As the core concept of the company's financial theory,capital cost plays an important role in the company's working capital management,long-term investment and fundraising activities,and the cost of equity capital is an important part of it.Then evaluate and analyze the rationality of cash holdings from the perspective of the impact of cash holdings on the cost of equity capital,and make recommendations on this basis.It is very good for companies to improve cash holding decisions and improve corporate governance.meaningful.This paper proposes research hypotheses by reviewing and theoretically analyzing existing literatures,and selects data from 2000-2016 of all A-share listed companies in Shanghai and Shenzhen.Firstly,it makes a full descriptive statistics on the development trend and current status of cash holding level of listed companies in China,and then through empirical analysis to explore how the cash holding level affects the cost of equity capital,and Other factors may have a regulatory effect on the relationship between the two.The conclusions of this paper are as follows:(1)There is a significant positive correlation between cash holdings and the cost of equity capital,that is,the increase in cash holdings will increase the cost of equity capital.Due to the high level of cash holdings of listed companies in China,the inefficiency of cash exceeds its role in reducing risks.(2)The higher the capital turnover rate,the stronger the effect of cash holding on the cost of equity capital.Companies with higher capital turnover rates than companies with low capital turnover have less demand for cash,and the increase in cash holdings is less efficient.(3)The higher the concentration of equity,the stronger the effect of cash holding on the cost of equity capital.The increase in the concentration of equity will aggravate the shareholder's encroachment on the interests of small and medium shareholders,resulting in adecline in the value of cash holdings.(4)The higher the asset-liability ratio,the weaker the effect of cash holding on the cost of equity capital.Companies with high asset-liability ratios face more serious financing constraints and financial risks.The increase in cash holdings can play a more active role,thus weakening the effect of cash holdings on the cost of equity capital.(5)Among state-owned holding companies,cash holdings have a stronger effect on the cost of equity capital.State-owned companies are usually able to enjoy more government and administrative resources,do not need to hold too much cash,and because of their insensitivity to capital market risk fluctuations,the effect of their cash holdings to increase the cost of equity capital is stronger than that of non-state the company.