Research On The Relationship Between Cash Holdings And Excessive Investment Under The Theory Of Financing Constraints

Based on the classical financial theory, all businesses can easily obtain the required funds fromthe external market, rather than the existence of financing constraints problems. But the real worldis not so perfect, asymmetric information and agency problems making the capital market presenceof its own shortcomings, financing constraints by the larger companies are not able to obtainsufficient funds when it needs to recharge quickly from the outside. Since the financing channels forenterprises mainly including internal financing and external financing, so when the externalfinancing is limited that companies can only rely on the support of internal funds.But thus will riseto a new problem, that is, when the enterprise holds a large amount of cash will increase controlover the management of corporate resources, prone to agency problems. At this point of time,business executives will be interested in expanding which is based on personal interests rather thanthe interests of shareholders and the company that led to over-investment in the end.Based on the existing study and summary, the paper take the relationship between cashholdings and excessive investment as a main line, and introduced financing constraints variable,explores the financing constraints in different degrees between the different of the relationship. Thearticle selected365manufacturing companies in China’s A-share listed nearly four years offinancial data as the study sample, using descriptive statistics, correlation analysis and multiplelinear regression method for the sample companies a full range of financial data, multi-angle,in-depth analysis of the impact of over-investment of free cash flow.The main conclusions are the followings:(1)most of the China’s manufacturing listedcompanies have the over-investment behavior;(2) the over-investment and excess cash-holdingshave significant positive correlation, meaning that the more abundant enterprise free cash flow, themore significant over-investment a company have(3)due to the different financing constraintssuffered by businesses, showing a different relationship between corporate free cash flow andover-investment: the relationship of state-owned enterprises are more significant than the privateones; the results showed interest under multiple packets, the higher the interest cover, the lowerfinancing constraints suffered by businesses, the impact of its free cash flow of over-investment;grouped under the dividend payout ratio, zero dividend impact on free cash dividends paid on thelow over-investment is small, and the greater the impact of the dividend payout ratio greater;Finally, the paper summarizes the relevant conclusions, and points out the shortcomings of thispaper.