Firm's Business Strategy And Cash Holdings

Cash is like the blood of a firm,and the decision of cash holdings is an important part of the firm's financial policy.The early research on cash holdings mainly focused on Keynes's monetary demand theory.The later financial scholars turned their research direction to the factors affecting the cash holdings and the consequences of holding a large amount of cash.The research on the influencing factors of cash holdings is gradually carried out from the micro level to the macro level.The cash holdings policy is affected by many factors,from the internal corporate level factors and governance factors to the external economic policies and governance environment of the company.This paper studies how the prospect strategy affects the level of cash holdings.Based on Bentley's measurement method of firm's strategy and the data of Chinese A-share listed companies from 2008 to 2017,this paper empirically examines the relationship between prospect strategy and the level of cash holdings,prospect strategy and the tendency of cash accumulation.Empirical research findings are as follows:First,there is a significant positive correlation between the degree of corporate strategic activism and the level of corporate cash holdings,that is,the higher the degree of corporate strategic activism,the more cash companies tend to hold.Second,there is a significant positive correlation between the degree of corporate strategic activism and the tendency of corporate cash accumulation,that is,the higher the degree of corporate strategic activism,the more sensitive the company's cash flow is,that is,the higher the tendency of corporate cash accumulation.Third,further research found that higher cash levels in prospect companies can increase company value.The above conclusions validate the precautionary motive.Companies with prospect strategies maintain high levels of cash holdings,which are beneficial to the value of the company,to cope with the risk of future uncertainty.This paper extends the research on the impact of firm's strategy on corporate financial policies and enriches the literature on corporate cash holding policies.At the same time,it also provides theoretical guidance for further improving the cash holdings strategy of listed companies in China.