An Empirical Study on the Effect of List Companies’ Governance Structure on Corporate Cash Holdings in China
|School||Nanjing University of Aeronautics and Astronautics|
|Keywords||Governance structures Cash holdings Cash value Ultimate controller|
Cash holding decision-making is one of the most important financial decision-makings, because itnot only reflects a company’s business strategy and financial strategy, but also closely related tocorporate governance. The economic consequences of cash holdings in corporate in the end is whetherthe "value creation" or "value destruction" is one of the most issues that investors concern.Based on domestic and international situation, this paper proposes research topic and analyze thesignificance of the study. In the second chapter, it sorts out and reviews the theory and literature ofcash holdings. This part mainly introduces agency theory as the core cash holding theory andtransaction cost theory, asymmetric information theory, trade-off theory and pecking order theory assupporting theory. In the third chapter, based on various theoretical studies and the aforementionedsummary of former literature, this part proposes governance factors which affect enterprises’ cashholdings, including indicators of ownership concentration indicators, ultimate controlling shareholderindicators, management shareholders indicators, shareholder protection indicators and Board ofDirectors indicators. According to theory and previous research experience, it makes assumptions andidentifies the research samples and data sources. In the fourth chapter, it makes regression analysisand T test on listed companies in China from2005to2010in the use of spss11.0software. It not onlystudy on cash holding volume, but also do further research on cash holding value from the perspectiveof ultimate controlling shareholder. Finally it gives research conclusions.After empirical study, this thesis finds the change trends of cash holdings affected by governancestructure: with the increasing of largest shareholder’s ownership percentage, the cash holding volumeof listed companies in China first increases and then decreases, with the increasing of ultimate controlshareholders’ control power proportion decreases, with the increasing of ultimate controlshareholders’ cash flow rights decreases, with the increase of the ownership proportion of managersincreases, with a higher level of shareholder protection increases, with the increasing of independentdirectors proportion decreases, but the independent directors protection’s impact on cash holdings isnot significant.To further investigate the impact of ultimate controlling shareholder on corporate cash holdings, itstudies on cash holding value that is how$1contributes to enterprise value. through empiricalanalysis, it finds out that cash holding value is lower in enterprises whose ultimate controllingshareholder control rights and cash flow rights are separated than the others; when there areseparations between control rights and cash flow rights, cash holding value is much higher in the enterprises whose ultimate controlling shareholder are natural persons or private enterprises thanothers. When there are separations between control rights and cash flow rights, ultimate controllingshareholders are able to achieve self-aggrandizement by ignoring the companies benefit due to lessrisk and more right in their hands. This research gives on evidence that cash is one of the methods thatultimate controlling shareholders use.In addition, compared with natural persons and private enterprises, state-owned enterprises havestronger motivation for their own benefit to damage listed companies value. It is because that listedcompanies are high-quality packaging of state-owned enterprises. They want the listed companiescreate more benefits for the ultimate controlling company, which can hurt the listed companiesthemselves.