An Empirical Study On The Relationship Between Controlling Shareholder And Cash Holding

This paper investigates the empirical effects on cash holding by the different characteristic of controlling shareholder of publicly traded China firms in the 2001-2005 periods. We control the effects by related financial factors, governance characteristics factor and industry. The results show that compared to the firms that controlled by local governments, the firms control by central governments or private individuals hold more cash. Besides, we find that pecking order theory and trade-off model made better explanation on cash holding of Chinese firms than agency theory.This paper discuss the reason why firms controlled by central governments or private individuals hold more cash father. It shows that governance factors have little effects on cash holdings in the firms controlled by central governance. And there is no evidence shows that firms controlled by local governments can get debt easier than central governments. When controlling the profit and dividend factors, there is still the same result. The reason might be that as the biggest shareholder, central government does not draw out the dividend which it deserves and leave it in the firms. The empirical research on private firms and local government firms indicates that private firms have higher financing restriction which results in more cash holding.Our finding shows that firms controlled by central governments hold more cash due to the dividend left by the biggest shareholder-central governments. But cash holding by this motivation is inefficient. Private firms hold more cash due to the discrimination by bank. while the private firms have the uppermost contribution on the economics growth, this discrimination will go against the development of economics.