Will Higher Cash Holdings Reduce The Risk Of Corporate Bankruptcy?

Cash holding plays a very important role in enterprise operation,investment and financing activities.Since the spread of COVID-19 coronavirus,global economic activities have been seriously affected,global industrial chains,supply chains and capital chains have been severely impacted,and the number of enterprise bankruptcies in various countries has risen sharply.Based on the trade-off theory,priority financing theory,agency theory and other theories analysis,this paper concludes that on the one hand,the increase of cash holding level can ease the financing constraints of enterprises and reduce financial costs.Moreover,enterprises with sufficient cash can reduce the price of products in the industry,form barriers to entry,seize market share and maintain the leading competitive position by increasing production.On the other hand,the increase of cash holding level may increase the opportunity cost and agency cost of enterprises and send a negative signal to investors.Based on the above theory,the key hypothesis is put forward to explore whether the increase of cash holding level can reduce the risk of bankruptcy.Secondly,by exploring the adjustment effect of investment expenditure,the paper analyzes the influence path of cash holdings on enterprise bankruptcy risk.Then,the gender heterogeneity of the top management team is taken as a conditional variable of cash holdings and bankruptcy risk,and relationship between the three is discussed.Finally,the enterprises are grouped according to the heterogeneity of regional economic development level,the heterogeneity of the integration of two positions,the heterogeneity of the age of the senior executive team and the heterogeneity of the educational background of the senior executive team,and the direction and strength of the influence of the increase of cash holding level on the bankruptcy risk of different types of enterprises are analyzed.This paper collects data of 1948 A-share companies,uses O-Score model to construct bankruptcy risk index,and uses fixed-effect model to demonstrate that increasing cash holdings can significantly reduce bankruptcy risk of Chinese Ashare listed companies.Combined with the previous literature and empirical results,it can be concluded that the increase of corporate cash holdings will lead to the increase of investment expenditure,thus alleviating the risk of corporate bankruptcy Gender heterogeneity of top management team can strengthen the relationship between cash holdings and corporate bankruptcy risk.The heterogeneity analysis of the samples shows that,compared with the control group,the increase of cash holding level can significantly reduce the bankruptcy risk of enterprises with lower regional economic development level,separation of two positions,less age heterogeneity of senior management team and less educational heterogeneity of senior management team.However,it is worth mentioning that the increase of cash holding level will increase the bankruptcy risk of enterprises with two positions in one.Finally,this paper summarizes the full text and gives different suggestions based on the government level,financial institution level and enterprise level,in order to promote the healthy development and long-term management of enterprises in our country.This paper has some innovation.First of all,there are unilateral studies on cash holdings and enterprise bankruptcy risk that have been explored by many scholars,but there are few domestic literatures on the impact of increased cash holdings on enterprise bankruptcy risk.This paper will discuss the influence of increased cash holdings on enterprise bankruptcy risk by combining theory and empirical study,which can enrich the correlation between cash holdings and enterprise bankruptcy risk.Secondly,some literatures at china and abroad believe that the increase of cash holdings can reduce the risk of enterprise bankruptcy.However,in the process of heterogeneity analysis,this paper finds that the increase of cash holdings will significantly increase the risk of enterprise bankruptcy of the two-job combination.This conclusion further enrichis the existing research content of cash holdings and enterprise bankruptcy risk.