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Analysis of cash holdings of listed companies in China

Author: XiangQun From: www.yourpaper.net Posted: 2009-10-05 19:29:33 Read:
Abstract level of cash holdings of listed companies on the Shanghai and Shenzhen description outlines the overall condition of the level of cash holdings of listed companies in China, revealed that the trend of the listed companies in China in recent years the level of cash holdings. In addition, this paper summarizes the level of cash holdings of listed companies in China some unique and unreasonable phenomenon, pointed out that the economic consequences of improper cash holdings, and gives a preliminary explanation from the system and corporate governance perspective.
Keywords capital markets; listed companies; cash holdings


The cash held decision-making is an important financial decision-making of the company's. Brealey and Myers (1996), how to determine the amount of the company's cash holdings is one of the top ten problems unresolved in the field of micro-finance. Cash holdings behavior is not only a comprehensive reflection of the company's financial strategy and business strategy, but also closely related to corporate governance and macro-institutional environment factors. And cash held by the economic consequences of the end value creation or value destruction ", more investors are most concerned about.
Monetary funds high quality, strong liquidity, the investors easy to have a preference. Accounting profit may just paper wealth is much more important for the survival of the company, the cash and cash flow position than accounting earnings. However, as an asset held cash income is relatively much lower, and the company has a lot of free cash flow, there may be a risk of abuse by management. Therefore, holding excessive cash may not be a good thing for investors.
Empirical research on corporate cash holdings divided according to their field of study, can generally be divided into two categories: factors affecting cash holdings and cash holdings economic consequences (including market value and operating performance) study.
Since it is an important micro-finance decisions, the level of cash holdings of listed companies in China how? What factors determine the level of corporate cash holdings? Institutional context of the special institutional background in China and emerging capital markets, the cash holdings of listed companies in China showing what kind of features? this article that study this issue.

Second, China's listed companies the level of cash holdings Description

This paper selects CCER "generally listed companies (non-financial) financial database in 1998-2005 a total of eight years of data analysis, all samples, including 1382 in Shanghai and Shenzhen, the 9042 annual observations.
1, the cash holdings of listed companies in China overall characterization. Table 1 below shows the level of cash holdings of listed companies in China for the period 1998-2005, including cash holdings absolute and relative levels.

As can be seen from Table 1, the cash holdings (cash / A) overall sample average of 16.2%, with a median of 13.1%, and cash held in the end of 2005, an average of 14.3%, median 11.5%. From the annual trend, showing a trend of increased and then decreased, and reached its highest point in 2001, and has been a downward trend in 2001, and this trend has not changed after excluding capital market financing when sample factors, indicating that this trend is not due to the financing (IPO allotment or issuance) factors. Why, in 2001, the average total assets of listed companies is rising, but the level of cash holdings also increased year by year? Has been declining since then borrow the basis of the theory of economies of scale? Mehzer (1963), proposed on the cash holdings of economies of scale hypothesis - With the expansion of the size of the company, the company's cash holdings there are economies of scale in a critical point. I infer that this is the level of cash holdings of such assets of scale generated by the assets reach a certain level before.
In this paper, all the sample companies by asset size packet (a span of 500 million yuan), The following chart shows the average value of the cash held by the proportion of each group company.
Can be clearly seen from the figure, the total assets of 10-15 billion range, the highest level of cash holdings, total assets held in the range of 5-10 billion high level of times, asset size and cash holdings Details inverted u-shaped relationship exists between. From the size of the assets of the listed company annual trend, the assets of the listed companies in 2001 with a median of 1.18 billion yuan (see Table 1), indicating that the vast majority of the company's assets are distributed in the range of 10 to 15 billion, resulting in 2001 years the highest level of cash holdings. Of course, the asset size of the level of cash holdings may be one of the main reasons of the annual trend of China's listed companies. In addition, the development of capital markets and external financing environmental improvements, making the company does not have to hold too much cash, as well as the strengthening of the corporate governance of listed companies and other factors, may also explain the reasons for the decline of the level of cash holdings of listed companies in China. 2, the analysis of the impact of capital market financing and financial distress on cash holdings. Taking into account the direct financing of the company's capital markets on the level of cash holdings have a positive significant impact, especially financing year, at current carried IPO allotment, issuance or issue convertible bonds sample grouping (Table 2 Panel B) The results showed that when the finance company sample the level of cash holdings significantly higher than all the samples, while excluding the level of cash holdings of the finance company sample is significantly less than the full sample, only 2005 are relatively small difference, which is mainly due to the 2005 years to implement the split share structure reform, capital market financing is almost at a standstill, when financing sample of only 19.
In addition, the company's cash in financial trouble holds usually lower ST, PT, net assets is negative is negative or main business income of the company as a financial predicament criteria for the classification of Table 2 Panel c according to whether the financial plight of the company grouped, and the results show that the level of cash holdings of financially distressed companies is significantly lower than the full sample, rather than the level of cash holdings of financially distressed companies sample is significantly higher than the all samples.

Table 2 Panel D reports at the same time eliminate the level of cash holdings in the financing and financial predicament sample, compared to all the samples in the Panel A, in addition to other than 2005 (the year mainly due to special financing pause), other years removed after the sample cash held water average above all sample. These instructions when financing a great influence on the level of cash holdings. Basically when the sample is selected from the cash holdings of domestic research literature excluded financially distressed companies, direct financing, usually excluded IPO sample placements, issuance and the issuance of convertible bonds to refinance () on cash held The level of impact is basically not to consider our empirical research selected sample time span is usually short, I do not think consider refinancing factors may be defective. 1998-2005 All sample 9042 year 1420 financing sample which IPO 668 752 refinancing refinancing, when a sample of the total sample of nearly 10%.
3, the level of cash holdings, industry analysis. Classification guidelines in accordance with the "listed companies in the industry in 2001 released by the China Securities Regulatory Commission, the listed companies in the industry is divided into 13 categories, more due to the number of manufacturing industries broad categories listed companies, sub-categories, according to the manufacturing sector, the manufacturing sub- 10 categories, for a total of 22 categories. Removing the financial and insurance industry for 21 industry categories. The five industries with the highest level of cash holdings for G IT industry; c9 other manufacturing; c8 pharmaceuticals, biological products; B extractive industries; L Communication and cultural industries (to the value of all the samples to sort): the level of cash holdings in 15% -20%. The five industries with the lowest level of cash holdings for C3 paper, printing; C6 metallic, non-metallic; J the real estate industry; electricity, gas and water production and supply industry; c2 wood, furniture, cash holdings of about 10% or so, or there are some differences between the different industries.

Third, the level of cash holdings of listed companies in China, a unique phenomenon

View from our listed companies, the level of cash holdings generally higher than foreign companies from 1998 to 2005, China's non-financial listed companies, the average proportion of cash holdings (cash to total assets ratio) of about 16%, almost is twice that of the United States, is also higher than in many other countries. In this study sample (excluding the financing of companies in the capital market), the highest proportion of cash holdings in technology trade (code: 600056) in 2003 to 75% in 2001, the proportion of cash holdings in 2002 up to 68% and 71% respectively. Sinotrans Development (code: 600270) from the 2001-2005 five consecutive years the proportion of cash holdings of more than 50%, "Securities Market Weekly Analysis The article said the company" happy to listing and financing scrimp on dividend returns, "not willing to multi dividends to shareholders, but the lack of investment project "can be recognized by investors, and accused him of" capital strategic destruction of shareholder value, "the typical (Xudong 2006).
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