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Excess cash held by the characteristics of listed companies

Author: Anonymous From: www.yourpaper.net Posted: 2009-04-01 22:16:37 Read:
Author: GAN Sheng Road Hu Jianping Yan Yan Qing
Abstract: Excess cash held by listed companies has qualities? China's manufacturing industry 329 listed companies in 2004-2006 for the overall sample, by defining the excess cash held by the listed company, the overall sample into excess cash holdings and excess cash held by two sub-samples from the corporate governance, financial aspects of the design variables on the two sub-samples for comparative analysis. The empirical results show that, compared with non-excess cash held by the company, Over-held cash gearing ratio of the Company, the long-term performance will be worse, the cash dividend payout ratio is low, there is no significant difference in degree of shareholder protection and management expense ratio.
Keywords: excess cash held; qualities; agency costs; Free Cash Flow
CLC number: F276.6 Document Type: A Article ID :1001-6260 (2008) the 06-0108-05, China
Cash and its equivalents enterprise production and management an integral part of one of the important assets. Corporate cash holdings behavior has long been the concern of many scholars in the field of financial management research. However, the existing theoretical and empirical literature on cash holdings either to study the motive of cash holdings, either to study the influencing factors (or determinants) of cash (or excess cash holdings) held excess cash held Some listed companies have what qualities rarely involved. This paper aims to fill this vacancy data for the three years 2004-2006, China's manufacturing industry 329 listed companies for the overall sample, the comparative analysis of the samples held by the excess cash and excess cash held control samples, over- The cash holdings traits corporate governance, the financial aspects of the empirical analysis.

First, the theoretical analysis and research hypotheses

Because the interests of the separation of ownership and management rights management in decision making may be too much to consider their own interests, to the detriment of shareholders (especially minority shareholders). However, if the higher levels of protection for shareholders, the shareholders by the shareholders' meeting, the Board and other channels to exercise their rights, so as to form the corresponding pressure on the company's management, to cash management, investment decisions have to take into shareholders interests and demands (Zhang Ji et al, 2005). In this case, the company generally does not hold excess cash. Once the company to hold more cash, will require the company to a reasonable investment or Cash dividends paid to shareholders, without cash management abuse and other undesirable phenomena. Guney et al (2003) found that the higher the degree of shareholder protection, the lower the level of cash holdings. Farinha (2003) to a sample of companies listed on the London Stock Exchange show that dividends paid help alleviate the agency problems of free cash flow, dividend payout free cash flow can reduce or increase the number of external financing to strengthen the external investors supervision. Accordingly, we assume:
H1: Over-cash held by shareholders of listed companies the degree of protection is weaker.
H2: excess cash held by listed companies cash dividend payout ratio.
Agent theory is that the motivation of the high cash held by management in order to create a personal empire or the pursuit of private interests. The firm's cash often occupied by low-income or used for the low efficiency of investment rather than paid to shareholders (Jensen, 1986). Richardson (2006) found that the the more sufficient free cash flow, the more likely caused by over-investment. Chen Hongming (2005) from the point of view of the discretionary spending that free cash flow is more discretionary spending. Caused by high cash held high agency costs, will inevitably lead to a decline in the company's long-term performance. FU Rong (2007) studies have shown that free cash flow is positively correlated with their discretionary spending, the company's long-term performance will deteriorate. Accordingly, we assume:
H3: Over-cash held by listed companies higher agency costs.
H4: excess cash held by listed companies and long-term operating results worse.
Jensen (1986), the liabilities can reduce the agency problem of free cash flow. The liabilities "hard constraints", due for payment of principal and interest, prompting managers to effectively assume the commitment to pay the cash flows in the future. In this way, the debt is an effective bonus substitute. So, in order to avoid debt this "hard constraint" can be any "squandered" cash flow, the Over cash held company managers do not take advantage of the high debt leverage to obtain leverage for our shareholders interests. (Zhou, 2002) showed that the liquor industry in our country has been very good efficiency existence of the agency costs of free cash flow, liquor listed company's debt rate is the lowest. Accordingly, we assume:
H5: Over-liability ratio of cash held by listed companies.

Second, the study design

(A) variable design (see Table 1)

(B) the sample selection and data source
Taking into account the business environment, business model, risk and profit level there is a big difference between the industry and the manufacturing number of listed companies accounted for more than half of the total number of listed companies in China, so we chose to December 31, 2003 in A shares listed on the Shanghai Stock Exchange manufacturing companies (including the issue of B shares or H shares of the Company) for the original sample as the observation interval (2004-2006). In order to try to ensure validity of the data, the original sample screening as follows: (1) Excluding the incomplete financial information companies in the study interval; (2) Excluding the ST in the study interval, PT Company; (3) Removal of the study range fluctuations in cash flows extreme anomalies company. Further taking into account the manufacturing sub-sector more to the China Securities Regulatory Commission issued by listed companies Industry Classification Guidelines as the standard, to inspect the manufacturing sub-sectors. Due to the small number of wood furniture, paper and printing, electronics and other sub-sectors listed companies, is not representative, it is greater than 25 the number of companies selected from the manufacturing sub-sectors as a sample study. After screening, and finally get the 329 company.
The data comes mainly from Wind Information database, GTA database, and the Shanghai Stock Exchange, China Securities Regulatory Commission and other sites publicly disclosed data. All data were disclosed in the annual report of listed companies at the end of the data. The collation and analysis of the data using the software Excel and SPSS13.0.
(C) the definition of the excess cash held by listed companies
Determination of a listed company over holding cash is necessary to first determine a standard as a normal cash holdings, will be more than the standard value of listed companies identified as excess cash held by listed companies. The choice of this standard, the different researchers using different methods.
Peng Tao Ying (2006) for three consecutive years monetary funds to total assets ratio is greater than 10% of the company is defined as a high cash holdings company. Xin Yu (2006) and SHANXI FINANCE AND (2006) is based on industry-adjusted cash holdings as the dependent variable, the financial characteristics of indicators as independent variables, the model to estimate the normal level of cash holdings, if a the actual cash holdings of listed companies is greater than the value of this estimate, it is defined as the excess cash held by listed companies. Zhou et al (2007) definition of excess cash held listed companies as: "When a listed company in a given year quarter cash holdings (monetary funds / total assets) in the industry above the median, put the listed company as a high cash holdings company. "Lu Chenxi (2007) during the empirical research, put the listed company for three consecutive years the amount of cash held by 30% in the top of the industry as divided over holding cash listed companies and non-excess cash held standards of listed companies.

Taking into account the findings of the extreme values ??will have an impact on the effectiveness of this article does not average industry cash holdings or a specific ratio as a measure of whether a listed company holding cash over-the standard, but from 2004-2006 cash holdings for three consecutive years in the same sub-sectors listed companies in the top 30% of the company is defined as the excess cash held by listed companies (sample), is defined as non-excess cash held by listed companies ( control samples). 329 companies belonging to the sample number 45, the number of companies belonging to the control samples of 284, the specific distribution in Table 2.

Third, the empirical results analysis

(A) the amount of cash held by the statistical analysis
Samples and control samples of corporate cash holdings three years the mean molecular description of the industry is shown in Figure 1.
As can be seen, the sample was significantly higher than that of the control sample companies on the mean of the three-year cash holdings. Fur in the textile and garment industry (C1), mechanical equipment, instrumentation industry (C7), as well as pharmaceutical and biological products industry (C8), two samples tend to hold more cash.
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