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Empirical analysis of the value of cash holdings of listed companies

Author: ZhaoXiaoLong From: www.yourpaper.net Posted: 2009-06-15 23:39:22 Read:
Abstract: 2006-2007, China's listed companies as samples to study the impact of cash holdings on firm value. Studies have shown that an inverted U-shaped relationship between cash holdings and the value of the company.
Keywords: listed companies; cash holdings; company value

1 Introduction

The late 1990s, the Western companies holding large amounts of cash and cash equivalents, why hold a lot of cash and cash equivalents? Reason gradually get the attention of Western scholars. Opler through the study found that the higher growth, higher risk smaller companies hold more cash; larger scale, a higher credit rating companies hold less cash. OzkanAandOzkanN empirical research found that the non-monotonic relationship between corporate cash holdings and operators stake. Chen Xuefeng, Weng Junyi placement of shares of listed company in 1999 as a sample to obtain a similar conclusion with foreign scholars. Based on the above review of the literature, this article will be China's listed companies as samples, trying to explore the relationship between cash holdings and the value of the company.

2 Study Design

(1) The research hypotheses. The existence of information asymmetry in the capital market so that the external financing costs is greater than the cost of internal financing, Myers and Majluf due to financing restrictions caused by asymmetric information, driving companies need to hold more liquid assets to cope with the future demand for investment. Companies use internal funds to help reduce the cost of financing, so as to enhance the value of the company. Jensen and Meckling's theory is that free cash flow, the presence of the agency problem between shareholders and managers causes the manager has to use its control over the control of the company's cash. Thus, this paper presents the research hypothesis: China's listed companies cash holdings and the value of the company was the inverted U-shaped relationship.
(2) samples of choice. In this paper, the Accounting Research Database (CSMAR DATABASE) 2006-2007 Shanghai and Shenzhen stock listed company annual financial report data sample empirical research. According to the research needs, the author of listed companies as screening: Taking into account the special nature of the financing structure of the financial sector, excluding financial listed companies and the financial position of abnormal ST and PT-listed company with a number of companies with incomplete data. Sample companies after the screening of 1311.
(3) research methods. In this paper, the value of the company (MBR) as explanatory variables, the non-monotonic relationship between the value of the company to verify the amount of cash holdings (CASH / NA), cited in the regression equation (CASH / NA) 2 as an explanatory variable. Other characteristics will affect corporate cash holdings decisions, introduced in the regression equation such as financial leverage, company size and other control variables in order to control the impact of these factors on cash holdings. The paper selected book value (MBR) to measure the value of the company.

In this paper, the following regression model analysis:
MBR = 0 1 CASH / NA 2 (CASH / NA) 2 3 CFLOW 4 CFVOLAT 5 FLEV 6 LNA
Where 0 is a constant, j is the regression coefficient (j = 1,2, ..., 6), and represents the residual term. 3 Empirical analysis

(1) variable descriptive statistics.
The ratio of cash holdings of listed companies in China average 28.48%, indicating a high level of cash holdings of listed companies in China. 2 04325, the standard deviation of cash holdings between cash holdings in listed companies in China are quite different. The minimum value of 0.09362 of the value indicators MBR big difference between maximum 0.9926539, listed companies in China there is a certain difference between the value of the company. (2) A description of empirical results.
As used herein, is the STATA9.0 software for statistical analysis.

Number of obs = 1300 F (6,1293) = 37.81
Prob> F = 0.0000R-squared = 0.0919
Adj R-squared = 0.0877Root MSE = 03271
The bracketed values ??in the table for the regression coefficient T test statistic P-value, **, *** denote significant on the 5%, 1% level.
At the 5% level of significance in terms of the overall study sample (CASH / NA) (MBR), a positive correlation between increased cash holdings to help enhance the value of the company point of view, to support the case of asymmetric information. (CASH / NA) and the value of the company at the 5% significance level, a positive correlation between (CASH / NA) the the 2 and the value of the company in a negative correlation between the 5% significance level.
The empirical results support the hypotheses proposed in this paper provides an inverted U-shaped relationship between cash holdings and the value of the company. As can be seen from the regression results, the cash holdings of China's listed companies on the value of the company is non-linear, Study Final results support the increase in corporate cash holdings will help enhance the value of the company's point of view in the case of asymmetric information.

4 conclusions and recommendations

The empirical results show that in an inverted U relationship between cash holdings of listed companies in China with the value of the company. Credit market and capital market information asymmetry and agency problems led to the non-linear relationship between the two of the company's managers. Based on the above analysis, we propose the following:
(1) The listed companies to strengthen cash management, improve the efficiency of use of cash. Based on past and current financial characteristics, industry and time established target cash holdings, to avoid cash holdings excessive or insufficient, thereby effectively avoiding idle funds of the company, the investment is excessive or insufficient investment.
(2) development manager market, establish managers constraint mechanism. Increase the stake of the managers, to strengthen the incentives of managers, prompting managers to choose to make cash on the possession and use of decision-making to maximize shareholder value measures.

References
[1] Xing-quan, Sun Jie. Corporate cash holdings: A Literature Review and Enlightenment [J]. Contemporary Finance & Economics, 2006, (9).
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