Analyst Coverage,Excess Cash Holdings And Economic Consequences

In recent years,the amount of firms’ cash holdings have increased dramatically both in developed or emerging markets,which has aroused extensive attention and discussion in academic and practical circles.The management of cash holdings has become a hot topic in the whole word.Cash held by enterprises is not only an important current asset of enterprises,but also an important financial decision-making process.It is always related to the survival of enterprises.However,the excess idle cash is easy to be squandered or even misappropriated by large shareholders and managers at will,resulting in serious agency problems.With the continuous development and improvement of China’s capital market,the role of securities analysts has penetrated into more and more economic activities.On the one hand,analysts’coverage of listed companies can improve corporate governance;on the other hand,analysts’publishing research reports or making profit forecasts actually play the role of information intermediary.Therefore,the coverage of securities analysts will affect the firms cash holding behavior.Based on the special institutional background of China,this paper uses 2009-2018 China A-share listed companies as the research object to explore the impact of analyst coverage on corporate cash holding behavior.On this basis,we further study the relationship between analyst coverage,excess cash holding and over investment,as well as the relationship between analyst coverage,excess cash holding and privileged consumption.This paper follows the research paradigm from normative to empirical,Chapter 1 mainly introduces the background,significance,framework and innovation of this paper;Chapter 2 describes the theoretical basis of the role of securities analysts,the theoretical basis of corporate cash holding behavior and the institutional background of the securities analysis industry,which lays a solid foundation for the follow-up research.Chapter 3 combs the relevant literature of analysts’ coverage and cash holding at home and abroad,and makes a comprehensive review of the existing literature.Chapter 4 begins with the empirical part,which is divided into theoretical parts,which first analyzes the mechanism,hypothesis and empirical test of the impact of analyst coverage on the cash holding level of enterprises,followed by the research of analyst coverage,excess cash holding and over investment,and finally the research of analyst coverage,excess cash holding and privileged consumption.Chapter 7 summarizes the whole paper,puts forward relevant policy recommendations,and points out the limitations of this paper and future research direction.On the basis of theoretical analysis and empirical test,the main conclusions are as follows:First,this paper examines the impact of analyst coverage on the level of excess cash holding and its mechanism.It finds that there is a significant negative correlation between the number of analysts and the level of excess cash holdings,More analysts coverage reduces the level of excess cash holdings.At the same time,this effect is more significant in the firms with high degree of information asymmetry and severe financing constraints,and also in the firms with high agency cost,low proportion of institutional investors’ shareholding and big management power.Further research shows that analyst coverage can significantly improve the market value of excess cash holdings and reduce the negative impact of excess cash holdings on the market value of enterprises.In addition,in the case of poor institutional environment,low product market competition and star analysts’ participation in coverage,analysts’ coverage would play a more obvious role,which contribute a stronger reduction of the level of excess cash holdings.Second,through the empirical test of the relationship between analysts coverage,excess cash holding and over investment,the research finds that:(1)Excessive cash holding can lead to over investment behavior;(2)analyst coverage can significantly inhibit the over investment behavior of enterprises;(3)analysts coverage restrains over investment by reducing excess cash holding.Further research shows that analyst coverage can negatively regulate the positive correlation between excess cash holding and over investment,and in firms with more serious managers’ self-interest behavior,analyst coverage has a more significant inhibitory effect on over investment behavior which might be caused by excess cash holding.Third,through the empirical test of the relationship between analyst coverage,excess cash holding and privileged consumption,the research finds that:(1)Excess cash holding leads to more managers’ privileged consumption;(2)analyst coverage can significantly inhibit privileged consumption behavior of managers;(3)analysts coverage can inhibit managers’privileged consumption by reducing excess cash holding.Further research shows that analyst coverage can negatively regulate the positive correlation between excess cash holdings and managers’ privileged consumption,especially the weaking effect of analyst coverage on the positive relationship between excess cash holdings and managers’ privileged consumption is more obvious in state-owned enterprises.In the research of analyst coverage,excess cash holding and its economic consequences,the possible innovations and improvements of this paper are as follows:First,this paper enriches the research on the corporate governance role of securities analysts.The results of this paper show that with the increased number of analysts coverage,the firms’ cash holding level has been significantly reduced,which directly inhibits the over investment of firms and the privileged consumption behavior of managers,and can adjust the negative economic consequences brought by the high cash holding level,thus reflecting the governance effect of securities analysts in China.It not only identifies the governance role of securities analysts in China,but also enriches the relevant domestic literature.At the same time,it can understand the function of analysts and the existence of securities analysts as a mechanism of external governance.In addition,this paper also discusses the marginal effect of other factors on the mechanism of securities analysts,which provides a new starting point for the research of securities analysts.Second,it enriches the research on the influencing factors of the firms’ cash holding level.The existing research on the influencing factors of the cash holding level mainly focuses on the the financial factors,internal governance,industry characteristics,institutional environment and macroeconomic policies on the cash holding level of enterprises,while less research on how the external governance mechanism affects the cash holding level.According to the statistics we collect,there is no special literature to study the impact of analysts’ coverage on the level of excess cash holding.Based on the theory of preventive motivation and agency motivation,this paper empirically tests the impact of analyst coverage on the level of excess cash holding and its mechanism,and expands the theoretical understanding of the determinants of cash holding from the external governance mechanism perspective.Third,this paper expands the research on the economic consequences of cash holding.The existing literature on the allocation flow and economic consequences of cash assets mainly focuses on the market value of cash holding,while the other economic consequences caused by cash holding are not paid enough attention,and mainly focus on the theoretical analysis level,especially the lack of empirical research based on large samples.By combing the literature,we find that although there are studies from the path of capital investment to explore,but capital investment is only a path of cash holding,only from the investment path to observe the transmission mechanism of corporate cash holding,which might be one-sided.In this case,this paper also brings the privileged consumption into the scope of discussion,which provides evidence based on privileged consumption for the specific behavior that affects the cash holding market value.In addition,this paper examines the moderating effect of analyst coverage on the relationship between excess cash holdings,over investment and privileged consumption.It also provides a specific path for analysts to coverage the impact of firms’ cash holdings value,which might enrich the related research fields.Fourth,on the basis of investigating the influence of analyst coverage on firms’ excess cash holdings,this paper further discusses the economic consequences of the relationship between analyst coverage and corporate excess cash holdings.It is found that analyst coverage restrains over investment and privileged consumption by reducing excess cash holdings.It not only enriches the research of analysts coverage and firms’ excess cash holding,but also brings analysts coverage,excess cash holding and their economic consequences into the same analysis framework,which makes the analysis chain more complete and expands analysts’ new understanding of the impact of firms’ financial decision-making behavior.