The Competitive Effect Research Of Cash Holdings On Product Markup Changes

Enterprises investment includes not only the regular explicit capital and R&D invest ment which can help enterprise get compet it ive superiorit y, but also pricing invest ment. Product pricing can hardly do without funding support. As essent ial financial resource, cash holdings can support enterprises' price strategy. As important aspect in pricing decisio n, changing product markup will affect enterprises' competitive performance. This paper focuses on the roles of cash ho ldings on markup changes and the ro le of markup changes on product market co mpet it ion.Using the dynamic panel data of manufacturing listed co mpanies in China A share market and system GMM method from 1998 to 2013, we first empirically examine the effect o f corporate cash ho ldings on their markup changes, and then introduce the real market condit io n o f business cycle fluctuat ions to study in-depth how do the cash ho ldings act on the markup changes under different business phases. Next we further examine the impact o f markup changes on product market performance and test how much the effect differs between economic contract ions and expansio ns. Finally we use Causal-Steps to verify that cash ho ldings may have indirect effect on product market competitio n through the mediat ing effect o f markup changes. The analyses find that cash ho ldings have negat ive effect on markup changes and this effect will be further expanded in recessio n. The more markup drops co mpared to the prior period(markup change is negat ive), the clearer co mpet it ive edge firms get through pricing. However, the extent changes when taking macroecono mic circumstances(expansion or recessio n) into considerat io n because o f the mix powers o f supply-side price competit ion and market demand. The mediat ing effect of markup changes shows cash ho ldings will support enterprises performance through price campaign.Cash ho ldings are the essent ial part o f liquidit y. Price is the important aspect o f enterprises compet it ion. This study reveals the pract ical function o f cash holdings on markup changes and product market performance and help firms make better use o f cash reserves and price changes to support its market ing strategy. Given the increasingly uncertaint y of co mpet it ive environment and product diversificat ion, this study puts forward valuable theoret ical and empirical reference to improve the co mpet it iveness o f Chinese enterprises.