Research On The Relations Between Cash Holdings Of Listed Companies And Investment Behavior

As a major driving forces to business growth and an important foundation for future cash flow growth, investment efficiency was directly related to the maximization of corporate value, but in reality, there is a non-efficient investment behavior in many companies in varying degrees. Asymmetric information theory and the free cash flow theory think that cash holdings could have an impact on corporate investment behavior. The specific point of view is as follows:According to asymmetric information theory, an excessive amount of cash holdings will not lead to excessive investment in enterprise; on the basis of free cash flow theory, corporate holding excessive cash will lead to the phenomenon of over-investment. Well, in China's listed companies, what kind of situation is existing? This is what this article wants to study and explore.First, this paper reviewed the research about relations between the company's cash holdings and investment at home and abroad, and then the article analyses the relations between corporate cash holdings and investment behavior using the asymmetric information theory and the free cash flow theory. Based on the above theoretical analysis, the paper builded a model on cash holdings factors combinating of China's financial and governance characteristics of China's listed companies, and selected the data from 2001 to 2006 of the listed companies in Shanghai and Shenzhen stock markets, then carried out Empirical Test. The results found that company size, growth opportunities, cash flow, dividend policy and executives share have a positive correlation with the cash holdings; leverage, capital expenditures, net operating capital,cash flow volatility and bank liabilities have a negative correlation with the cash holdings; and the company risks, the major shareholder shareholding ratio and cash holdings have no significant correlation.On this basis, the paper estimated cash holdings going beyond the normal condition about the sample company according to the variables that influence the cash holdings,and then, by the model divided the sample into two groups of the excessive cash holdings and the insufficient cash holdings. The article carried on research by groups. The empirical test results show that the two samples all appeared under-investment behavior. In addition, the paper also divided excessive cash holdings of listed companies into high-financing constraint group, middle-and low financing constraint group by the size, and carried on regression testing by groups. The results showed that the high financing constraint group appeared under-investment, but the middle-and low financing constraint group financing constraint group has shown excessive investment. In the Excessive cash holdings sample, the investment behavior of the high financing constraint group confirmed the theory of asymmetric information "financing constraint" hypothesis, while the investment behavior of middle-and low financing constraint group confirmed free cash flow of the agent theory.