Predation Risk, Corporate Liquidity And Investment Behavior

In the product market competition, if the company cannot fully exploit its investment opportunities (i.e. lack of investment), there will be the risk of being plundered investment opportunities and market shares by the competitors, the risk is that predation risk. In essence predation risk is the risk of a lack of investment, results of previous studies show that predation risk will affect the company’s micro-decisions. At present, China’s market economy is in transition period, China’s product market competition is becoming increasingly to highlight some of the features. Such as, the concentration of industry trends strengthened, inter-industry has a low degree of product differentiation, companies have the similar business practice, and these features make the interdependence of investment opportunities between businesses and competitors becoming further strengthen, thereby predation risk becoming stronger. In this context, the study of predation risk helps our companies to take measures to avoid risks, and enhance competitiveness.Based on these, the article take predation risk of product market competition as the starting point, references related research scholars from home and abroad, analyzes the industrial organization theory and cash holdings theory, and then studies predation risk, corporate liquidity and investment behavior. The article based on empirical data in Chinese listed companies in 2008 and 2012 to establish multiple regression models to test the relationship between the three tests. Specifically, the article studies three questions:First, the relationship between predation risk and cash holdings; Second, the introduction of the company’s external liquidity - credit lines, to research or without access to credit lines would not affect the relationship between cash holdings and predation risk; Third, the article studies if firm’s liquidity (internal liquidity cash holdings plus external liquidity credit lines) can as a risk management tool to manage predation risk when the company in the face of predation risk, to increase investment, mitigate pressure. The article’s study found that there is a positive correlation between cash holdings and predation risk, the greater the risk of predation, the more cash the company holds; Compared with access to credit lines company, there is a stronger positive correlation between predation risk and cash holdings in no access to credit lines company; Company’s liquidity can be as a risk management tool to manage predation risk, a combination of both, enables the company to further increase investment spending under predation risk, avoids into the situation of insufficient investment.Results of this study indicate that the product market competition will affect the company’s micro- decisions.Meanwhile, the conclusions of the article also shows that the company can help businesses fluidity when threatened predation risk, increase investment spending, mitigate risk.The conclusions of the article provide an experience evidence for that corporate liquidity can as a risk management tool to manage predation risk.