Anti-Corruption,Relationship Dependence And Corporate Cash Holdings

Under a series of strict assumptions proposed by Modigliani and Miller（MM）,any financing needs of the enterprise can be timely and reasonably met from the capital market,so cash holdings are redundant and will only bring unnecessary opportunity costs and management costs.However,in the real economy,the cash holding level of the company is not simply as low as possible.On the contrary,when the financing environment is poor,the company has to hold more cash to deal with liquidity risks.In particular,when the cost of corruption is low,maintaining good relationships with financial institutions and government departments has become a magic weapon for enterprises to enhance their financing capabilities and reduce cash holdings.This phenomenon is referred to as relationship-dependent in this paper.Although relationshipdependent can alleviate the problem of adverse selection and provide financing shortcuts for some enterprises,it may also hide financial corruption such as rent-seeking,seize financial resources of non-relationship-dependent enterprises,and weaken the role of resource allocation in financial markets.In this regard,good external supervision is essential.At the end of 2012,China launched an unprecedented "Xi’s anti-corruption",which curbed government corruption,while also having a great deterrent effect on financial corruption.Specific to enterprises,anti-corruption cut off the original financing channels of relationship-dependent companies and forced them to increase their cash holding levels,while non-relationship-dependent companies were able to reduce their cash holding levels.This paper intends to carry out an analysis around this core argument.In summary:（1）In the financial system where state-owned financial institutions dominate,state-owned enterprises have a natural connection with the state-owned financial sector.I call it passive-relationship-dependent,and anticipate it will be restricted after anti-corruption.（2）In the external environment where "table culture" prevails,some companies are keen to establish and maintain relationships with financial institutions and government departments through "eating and drinking".I call it active-relationship-dependent,and also anticipate it will be difficult to play a role after anti-corruption.（3）Considering that state-owned enterprises with passive-relationship-dependence may have less demand for active-relationship-dependence,I further anticipate that anticipation（2）mainly exists in non-state-owned enterprises.（4）The companies with strong financing ability are less affected by the external financing environment.Therefore,it is expected that the above anticipations are more obvious in the companies with stronger financing constraints.I selected 2010-2015 Shanghai and Shenzhen A-share listed companies as a research sample and conducted an empirical test on the above expectations.The results show that:（1）After anti-corruption,compared with state-owned enterprises,the cash holding level of non-state-owned enterprises decreased significantly.（2）After anti-corruption,compared to active-relationship-dependent companies,non-active-relationshipdependent companies’ cash holding levels have decreased significantly.（3）Results（2）mainly exist in non-state-owned enterprises.（4）The above results are more pronounced in companies with stronger financing constraints.In addition,in order to further explain that the change in cash holding level comes from the improvement of the financing environment,I use the "investment-cash flow" sensitivity model to conduct a mechanism test,and the results are in line with expectations.Finally,a series of robustness tests were performed in this paper,including changing the measurement method of activerelationship-dependence,using a two-way fixed-effects model,etc.The results remained basically the same.This paper empirically tests the role of anti-corruption in improving the financing environment from the perspective of relationship-dependent and non-relationshipdependent companies’ cash holdings.This paper expands the research on the economic consequences of anti-corruption and the research on the influencing factors of cash holdings,and provides new empirical evidence for the positive results of anti-corruption in the financial field.