Research On Determinants Of Cash Holdings Of Listed Companies

Cash holdings is an important finance behavior and management strategy of corporate, which not only relating to the enterprise daily transaction and management, but also relates the enterprise's other finance decision-making, like investment, financing, dividend distribution and so on. In addition, cash holdings has also close relation to corporate governance. Western scholar had started their cash holdings research from the different point of view,and presents some cash holdings theory ,including static tradeoff theory , asymmetry information theory , agency cost theory and financing hierarchy theory. In West Country, many experiential research on corporate cash holdings have becoming more and more from 1990, and the determinants of firm cash holdings has increased rapidly. In empirical study,they found evidence that corporate characteristics, such as cash flow,debt structure,bank debt,growth opportunities etc, have an large impact on cash holdings.This Paper divides the determinants of corporate cash holdings into corporate characteristics factors,governance characteristics factors and market environment factors investigates the empirical determinants of corporate cash holdings basing a sample of 892 firms public trade in china stock during the 2000-2005 Period.The results reveal that leverage, cash substitutes, bank debt, have a significant negative correlation with the corporation cash holdings; Cash flow, growth opportunity, providing cash dividend have a significant positive correlation. In terms of governance characteristics,this paper observes that they have an important effect on cash holdings. Firstly,State share has a significant negative impact on cash holding; Legal Person share, A share has positive correlation. Secondly ,controlling shareholder and the ownership of first shareholder has negative impact on cash holdings, but not statistically significant; Thirdly, board characteristics including board size, independent director ratio do not have a significant effect on cash holdings. Finally, share Protection has an negative effect on cash holding. In terms of market environment, firms which face drastically competitive in output market would hold more cash than the firms facing no competitive.