The Effects Of Information Asymmetry On Cash Holding Level And Valve Of Listed Companies In China

As early as in the Keynesian period, economists began to pay attention to cash holdings,to relax the perfect assumptions of the Modigliani-Miller Theorem, more scholars continue toenrich and develop the theoretical and empirical research on cash holdings, but fro m theexisting literature point of view, there is very little literature related to asymmetricinformation on the cash holdings. for there are different interests on the issue of cashholdings between company managers and outside investors, It is a unified framework tostudy the impact of Asymmetric information on the company's cash holdings as well as onthe value of cash holdings, and it is a combination of Information economics and CorporateFinance theoretical research. At the same time, as liquid assets in cash is the lifeblood of thecompany, it is very important for company,The substantive content of the impact of this effectrevealed by the study of asymmetric information on the cash holdings of Chinese companieshave important practical significance,regardless of the financing decisions of listed companies,corporate governance, or the securities market information environment, and how to improvethe efficiency of China's capital market as well as resource optimal allocation.in China Based on the trade-off theory, financing Pecking Order theory, free cash flowtheory and agency theory, combined with the special background of China's listed companies,the paper analyzed how asymmetric information affects the level and value of corporate cashholdings. it explored deeply the connotations of the determinants of cash holdings and valueof cash holding by empirical study of asymmetric information on the impact of cash holdingsand their market value. This article focus on solving the five issues: F irst, it identified whatthe entry point of this paper is through reviewing literature? Second, how about the situationof China's listed company cash holding and the background situation with associated regime?Thirdly, what was the mechanism of the impact of asymmetric information on the company'scash holdings and their value? Fourth, how to measure the listed companies informationasymmetry? Fifth, how about the impact of asymmetric information on the level and the valueof cash holdings in listed companies? How about the value of cash holdings under differentinformation environment? The paper chosen information asymmetry as entry point to study cash holdings Based oninduction and analysis from existing literature, it had four main chapters to resolve the mainissues in this paper.Based on company financial and corporate governance data from1710listed companiesin China2001-2010, The third chapter firstly analyzed the status of company's cash holding, itfound that the company's cash holdings level had growing trend, the level of cash holdingswithin the different industry had substantial fluctuations and difference, the greater size of thecompany the level of cash holdings is lower; the higher the Tobin's Q value, the higher thelevel of cash holdings; the higher the proportion of state-owned shares, the lower the level ofcash holdings; the higher equity balance degree, the higher the level of cash holdings; thehigher equity holdings by high managerial ownership, and cash holdings is also higher; at thesame time,the later of the chapter analyzed the background of the relevant system combinedwith China's capital market development and the evolution of corporate governance andinformation disclosure regime change which lay the foundation for the later chapters ofanalysis.In the forth Chapter, the paper analyzed a variety of information asymmetry variablesand substitution variables, measured directly probability of informed trading and stock pricesof non-synchronous volatility as information asymmetry index of the listed companies andanalyzed specific information asymmetry of Chinese listed companies based on the sequentialtrading model and stock prices of non-synchronous fluctuations model, using the stocktransactions of data and company stock yield, the market rate of return and industry yield data;at the same time, this chapter established the utility function model for the mechanism ofinformation asymmetry on cash holdings and their value based on static and dynamicanalysis,considering managers and investors' interests were at the same or not which lay thefoundation for the corresponding theoretical assumptions and empirical analysis of the laterchapters.In the Chapter V the paper built non-balanced panel empirical model for the informationasymmetry on the level of cash holdings based on Harford, Mansi and Maxwell (2008) model for reference, adding the information asymmetry variables, Empirical results showed asignificant negative correlation between asymmetric information and the level of cashholdings of the listed companies in China which supported the free cash flow theory andprincipal-agent theory, the higher the degree of information asymmetry, managers more likelyto abuse the cash. In the case of high degree of information asymmetry, investors do not havethe ability to monitor and constraint managers who using the most convenient cash assets forpersonal gain.In the Chapter VI the paper built non-balanced panel empirical model for the informationasymmetry on the value of cash holdings based on Dittmar,Mahrt-Smith (2007) model forreference, adding the information asymmetry variables, empirical results indicate thatinformation asymmetry was significantly negatively correlated with cash holdings value ofChina's listed company,which had a significant positive correlation with proxy variables ofcorporate governance. Empirical results support the free cash flow theory and principal-agenttheory, the higher the degree of information asymmetry, managers more likely to abus e thecash which resulted in valuable decline of cash holding, and improve corporate governance,strengthen investor protection can improve the value of cash holdings. At the same time,under different information environment, especially considering the cross-listing companies,the data reinforces the above relationship held by the company's cash value and theinformation environment and corporate governance.Finally, on the basis of the analysis in the previous section, the paper gave theconclusions of this study, Policy Implications and research prospects. The conclusions of themajor emphasized on strengthening the construction of the information disclosure system, theprotection of investors and improving the governance of listed companies.