Agency Costs, Financing Constraints And The Value Of Cash Holdings

In today’s society,economy is developing rapidly.The cash is rapidly influencingthe survival and improvement of enterprises. Since the beginning of the last century90’s, a large number of domestic and foreign enterprises started to hold enormousfunds. However, in our country, there are many problems in corporate governanceand the external investor protection is not perfect enough. This excess cash generatedcapital allocation problems such as excessive investment, big shareholders occupy alarge amount of money, the manageron the consumption and serious inefficient,which caused great negative effect.Therefore, in-depth study of the problem ofcorporate cash holdings, and puts forward effective solutions is an expansion in thescope of theoretical research andpractical application.In this paper, the value of cash holdings is the research’s primary object. Andwemake themethod of combining the theoretical analysis and the empirical analysis,which mainly studied how the agency cost impact on cash value and governanceeffect of financing constraints. Specifically, research ideas are as follows:First,analyze and investigate the relationship between the agency cost, financingconstraints and the value of cash holdings. Then combined the related literature andthe capital market of our country, put forward the research hypotheses; Second,collecting listed companyin Shanghai and Shenzhencovering the period of2008—2011as a data sample, using multiple linear regression model, empirical test theproposed hypothesis; Finally, based on the theoretical analysis and empirical testresults, this paper put forward some advises about corporate governance.Throughpositiveanalysis we have arrived at the following conclusions:First, the paper uses the agency theory, free cash flow and corporate cash holdingtheory to analysis the internal reason of the low efficiency. There arefour motives forcash holdings: the transactions motivation, the precautionary motivation, speculativemotivation and agent motivation. The agent motivation refers to big shareholders ofthe enterprises, managers are often motivated by personal interests to holdlarge amounts of cash.The amount of free cash flow will bring economic rent and quasirent economic problems. In the word, the agency problem is negative to the value ofthe cash.Second, it discusses the special background of China’s,through the reform ofstate-owned enterprises, the split share structure reform, China’s capital market hasmany institutional defects. The defects,such as inefficiency of governance,the highlyconcentrated ownership, causes our agency cost become more and more serious.Because of the differences between private enterprises and state-owned, such asthebackground, the selectionstandardof talent, so that there are differences in theeffect of the two types of agency costs.Third, combined with the free cash flow theory, proposing the financingconstraintscanease the effects of the agency costs, which are negative to the value of cashholding. Lacking of free cash flow, the agency cost lack the necessary conditions.And financing constraints help the company to improve the company’s investmentoption value.In order to realize the value of the company, shareholders and managerswill retain the assets, not be"tunneling".In short, combined the two factorsof the agency costs and financing constraints, thespecial background of China’s capital market, to research the differences between ofthe effects of two types of agency costsdetailed previous studies.And put forwardsome advises about the corporate governance is in favor ofimproving efficiency of thecash holding. It’s an expansion in the scope of theoretical research andpracticalapplication.