Research On The Influence Of Corporate Growing Capacity On Cash Holdings

Cash holdings play important roles in corporate existence and development. The common sayings are"Cash is the blood of a company"and"Cash is the king". There are many factors which have influences on corporate cash holdings, and much of the recent research focuses on corporate governance factor. However, continuing operation is the basis of fulfilling corporate function and objectives. So exploring on cash holdings based on operation demands is also important. This paper's research on the influence of corporate growing capacity on cash holdings may expand this study field. Corporate growing capacity is the capacity of corporations to grow from little to great, from weak to strong, which is obviously reflected in the process expressed by corporate lifecycle theories. So this paper connected corporate growing capacity with corporate lifecycle, and analyzed the differences of corporate growing capacity in different lifecycle periods and the influences of this capacity on cash holdings.The study of this paper combined theory analysis with empirical research. Firstly, former research on corporate cash holdings were reviewed and appraised according two clues—operation demands and corporate governance. Then relevant theories were used to analyze the influence of the growing capacity on cash holdings. Thirdly, corporate lifecycle perspective was introduced to analyze corporate growing capacity, cash flow and cash holdings in different lifecycle periods. In empirical analysis part, this paper chose 872 listed companies in Shanghai or Shenzhen stock exchange, which were classified to 206 growth period samples, 482 mature period samples and 184 decline period samples. With descriptive statistics and linear regression, this paper drew conclusions below: (1) To the whole samples, corporate growing capacity has no influence on cash holdings. (2) As to corporations in growth period, corporate growing capacity is significantly and positively related to cash holdings. (3) As to corporations in mature period, corporate growing capacity is not significantly related to cash holdings. (4) As to corporations in decline period, corporate growing capacity is significantly and negatively related to cash holdings.This paper's theory interpretation and empirical analysis of the influence of corporate cash holdings based on corporate lifecycle have important meanings to enrich cash holdings theories system and expand research scope of cash holdings based on operation demands, also to provide advices to help corporations decide to hold appropriate cash.