An Empirical Study Of Cash Holdings’ Motives Of Listed-firms In China

In2007, the global subprime crisis led to the collapse of many companies, its directreason is the company’s liquidity shortage caused by capital chain rupture, triggering afinancial crisis and bankruptcy. When the global economy are not out of the financialcrisis，the European sovereign debt crisis broke out in2010，and the fluctuations of theworld economy make the company’s capital chain very fragile，for example, due tocapital chain rupture,Auto giant general motors had to ask congress for emergencyassistance. Thus, liquidity problems have become the company’s focus in recent years.In order to strengthen liquidity management, the company put financial flexibility in thefirst place in the financial management. Because of cash is a company’s most liquidassets, listed companies in developed countries held the large amounts of cash and itsequivalents. Listed companies in China are facing imperfect capital market andunreasonable corporate governance structure etc. Therefore, studying the cash holdingsof listed companies in China is of great importance.This paper adopts the way of combining the theoretical analysis and empirical test.First of all, the paper analyzes the cash holdings of motivation theory, balance theory,pecking order theory and free cash flow theory. Then, with the data of listed companiesin Shanghai stock market in China from2007to2012as sample, the paper uses thepanel data model to empirical analysis cash transaction motive, the precautionarymotive and self-interest motive. Finally, policy recommendations of listed companies tomaintain a reasonable level of cash holdings and strengthen liquidity management areput forward.This paper get the following conclusion: Chinese listed companies exist transactionmotive, the precautionary motive and self-interest motive. As the transaction motiveproxy variable, company transactions, cash flow, level of dividend payments and cashholdings has significant positive correlation, cash substitutes and cash holdings hassignificant negative correlation relationship; As a precautionary motive proxy variable,cash flow volatility, investment opportunity, leverage and cash holdings has significantpositive correlation, bank debt and cash holdings has significant negative correlationrelationship. Cash holdings of self-interest motive mainly reflect in: Ownership concentration and self-interest motive cash holdings showed a cubic curve relationship.Executives shareholding and managers’ self-interest motive cash holdings werepositively correlated. Thus, this paper holds that our country should perfect the capitalmarket and reduce the company’s financing constraints. Listed companies shouldstrengthen the cash management and improve the efficiency of cash, at the same time,strengthen supervision over managers and shareholders’ incentives, and constraints.