The Effect Of Excess Cash Holdings On Business Performance

In recent years,Chinese enterprises have continued to grow and develop.However,due to the current mode of financing in China,the main source of borrowing is still the bank financing model.At the same time,the fact that banks have harsh conditions for reviewing the borrowing process and higher standards are set aside for the Chinese companies.Meanwhile,the corporate governance is weak.In this situation,the cash holding decisions of these companies must be bound to the actual background.Companies will not only determine the optimal amount through the trade-off theory,agency theory will also play a role.Trade-off theory and agency theory are two kinds of theories that explain the motivation of excess cash-holding behavior.Under different theoretical explanations,the effect on performance is not the same.The positive effect of excess cash holding on performance is in line with the trade-off theory,while the negative effect is more in line with agency theory.In order to study the financing-restricted enterprises,this paper adopts a group-regression method to determine the more suitable theory to prove the motivation of financing-restricted companies.The regression results show that the financing restricted companies are more suitable for theoretical support of agency theory.In order to verify whether a good corporate governance can improve this situation,this paper added cross-variables between governance dummy variables and excess cash in the model.The results show that if the financing constrained company is in a good corporate governance,the impact will be positive.