Cash Holding Case Study

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II. Theory and Literature review 2.1 Review of important previous studies of cash holding issue Cash holding is an important financial and strategical issue for a corporation and also one of the hot issues of foreign and domestic academic researches. The concern for the cash holding issue could date back to the Keynesian theory of the demand for money. This theory is mainly focused on the demand for money from the perspective of macro economy. The theories and empirical studies of cash holding issue from the perspective of micro economy expended with the trade-off theory (Kraus and Litzenberger, 1973), Pecking order theory (Myers and Majluf, 1984) and agency theory (Jensen and Meckling, 1976). It’s necessary for a study to review the previous…show more content…
(1) The corporation management level. Normally, there are 2 kinds of method to study the corporation management level. One is financial indicator. This often concerns about the size of corporation, the debt ratio, the growth of corporation and so on. The other one is management factors. The papers of management factors often make analysis from the perspective of diversification of corporation management. The diversification of corporation management could help lower risk and strengthen the advantage of internal financing, so that cash holding level could be optimized. (2) The structure of corporation management. The papers that research the cash holding in perspective of the structure of corporation management often analyze the differences of corporation management environment. The main factors of corporation management include size of the board, concentration level of ownership, ratio of management shareholding, the nature of controlling shareholder, etc. (3) The external environment. The papers from the perspective of the external environment often analyze the macroeconomic environment, the level of market competition, policy and system environment,…show more content…
He concluded that the cash holding level of a corporation with diverse corporation management is significantly lower than the cash holding level of a corporation with non-diverse corporation management. The reason of this phenomenon is that the corporation with diverse corporation management has more investment opportunities. Subramaniam(2011)used the multiple regression to analyze the data of listed companies in US from 1988 to 2006. The structure of corporation is an important factor which influences the cash holding level. The corporation with diverse corporation management has less cash holding. This is because the corporation could finance through its internal capital market so that it has greater opportunities for asset sales and higher agency cost. WANG Fusheng and SONG Haixu (2012) used the fixed effects model and random effects model to analyze the data of listed companies in Chinese A share stock market from 2004 to 2010. The level of diversification of corporation management has a significant negative effect on cash holding level. When the ultimate controlling shareholder is state, the effect of level of diversification of corporation management decreases; when the agency problem between ultimate controlling shareholder and minority shareholders is significant, the effect of level of diversification of corporation management is

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