This paper analyzes and evaluates the equilibrium theoretical model, information asymmetry model and agency cost model of western scholars' cash holding behavior, and discusses the decisive factors that affect the cash holding amount, in order to provide reference ideas for managers to make correct cash holding decisions and improve the efficiency of enterprise capital utilization.

Paper Keywords: cash holdings; Trade-off theory; Information asymmetry; Agency cost

I. Introduction

The cash holding behavior of enterprises is an important financial management behavior of enterprises. With the rapid development of China's securities market, cash holdings, as an important financing channel for enterprises, are becoming more and more significant to business strategy and investment decision-making, and the efficiency of capital utilization of listed companies has attracted more and more attention from investors. Since 1990s, western scholars have conducted a lot of discussions on cash holding behavior of enterprises, and have formed rich research results. However, the research on cash holding behavior of listed companies in China, whether normative or empirical, has not attracted enough attention. In view of this, this paper uses the western theoretical model of cash holding to analyze the decisive factors that affect the cash holding behavior of enterprises, hoping to provide reference for the in-depth study in this field in China.

Second, the theoretical model of corporate cash holding behavior

Why do companies hold large amounts of cash and cash equivalents? Western scholars have analyzed the motivation of holding cash from many angles, and systematically put forward trade-off theory model, information asymmetry model and agency cost theory model.

(A) Trade-off theoretical model

The trade-off theory model holds that enterprises determine their optimal cash holdings by weighing the marginal revenue and marginal cost of holding cash. The benefits of cash holding mainly include: reducing the probability of financial difficulties for enterprises; Reduce the external financing cost of enterprises and liquidate existing assets: enable enterprises to continue to implement investment policies when financial constraints arise. Cash holding costs include holding costs (management costs and opportunity costs), switching costs and shortage costs. Enterprises are short of cash and have to raise funds from external capital markets, such as selling existing assets, cutting dividends and investments, issuing stocks and bonds, renegotiating financing, or using various methods. The model holds that if the cost of selling its own assets is low enough, enterprises will not raise funds in the capital market. According to the trade-off theory model, the factors that affect the cash holding behavior of enterprises are:

1. Transaction cost of raising external funds Generally speaking, the transaction cost of raising external funds by enterprises entering the open capital market is lower, which means that enterprises can raise external funds more easily and thus hold less cash. In addition, companies with strong borrowing ability may also hold less cash. For example, companies with higher credit ratings can easily raise funds from outside and hold less cash.

2. Cash substitutes and dividend payment level When an enterprise has assets on its balance sheet and these assets can be converted into cash at a lower cost, it is correct to raise funds by selling these assets. Therefore, such enterprises usually hold less cash and a higher level of convertible "current assets". Current assets other than cash can be realized at a lower cost in the case of cash shortage, and these current assets are regarded as cash substitutes. In addition, companies that pay dividends can obtain low-cost funds by reducing dividend payments, so these enterprises hold less cash than those that do not pay dividends.

3. Investment Opportunities The increase of profitable investment opportunities means that the company will have to give up good projects if it faces cash shortage. Therefore, the more such investment opportunities, the more enterprises should hold cash. At the same time, the financial distress cost of enterprises with excellent investment projects is higher, because the net present value of excellent investment projects that constitute the enterprise value will almost disappear completely when bankruptcy occurs, so enterprises with more excellent investment projects will maintain a higher level of cash holdings to avoid financial distress.

4. Financial leverage The relationship between financial leverage and cash holdings is uncertain. On the one hand, with the increase of financial leverage, the probability of enterprise bankruptcy will rise, so it is expected that enterprises with higher leverage will hold more cash. On the other hand, the financial leverage ratio reflects the borrowing ability of enterprises. The higher the leverage ratio, the stronger the debt capacity of the enterprise and the lower the cash level held. Therefore, the leverage ratio is regarded as the reverse substitution of cash holdings and liquid securities (John, 1993).

5. Enterprise scale Because of the economies of scale brought by the fixed cost of securities issuance, the external financing cost of large-scale enterprises is lower. In addition, due to diversification, large enterprises can sell non-core assets to obtain cash flow, and the probability of financial distress is low (Rajan & Zingales, 1995). The above analysis shows that the scale of enterprises is negatively correlated with the level of cash holdings.

6. Cash flow and its uncertainty Cash flow is the source of holding cash. For enterprises with more cash flow, the risk of giving up valuable investment opportunities and facing financial difficulties is low, so the level of cash held by such enterprises is generally low. In addition, due to the existence of market conditions and other unforeseen factors, it is usually difficult for enterprises to accurately estimate and predict future cash inflows and cash outflows, and this uncertainty of cash flow will increase the risk of cash shortage. Therefore, companies with uncertain cash flow will hold more cash.

7. Debt maturity structure The debt maturity structure also has an important impact on corporate cash holding decisions. The higher the proportion of short-term liabilities, the enterprise will face financial risks due to frequent extension, and it is easy to get into financial difficulties. Therefore, when other variables remain unchanged, the debt maturity structure is negatively correlated with the cash holdings of enterprises. However, Barclay and Smith( 1995) found that enterprises with the highest and lowest credit risk issue more short-term debt, while enterprises with moderate credit risk prefer to issue long-term debt. The higher the credit rating, the stronger the ability to borrow. If the issuance of short-term debt is regarded as a variable reflecting the highest credit rating of an enterprise, then the debt maturity structure is positively related to the cash holdings of the enterprise. In addition to the above factors, hedging cost and cash conversion cycle will also affect the cash holding level of enterprises. The higher the hedging cost, the longer the cash conversion cycle, and the more cash it holds.

(B) Information asymmetry model

The information asymmetry model holds that due to the existence of information asymmetry, enterprises need to pay costs to raise external funds. For example, external capital providers do not fully understand the asset value and business information of enterprises, and the asymmetry of this information may cause confusion in the stock price of enterprises in the market. Therefore, external capital providers believe that in order to ensure that they do not buy securities at overvalued prices, they should appropriately discount the securities they buy. However, it is precisely because of the existence of information asymmetry that the information transmitted to the management by the discount of external capital suppliers may be that the securities price is undervalued. In this way, the management finds that it may be more advantageous not to issue securities, which will reduce investment opportunities accordingly. The information asymmetry model predicts that when securities issuance is sensitive to information, the cost of raising external funds will increase with the increase of information asymmetry. Therefore, in order to reduce the high cost caused by information asymmetry, it is valuable to hold enough cash. Antunovic (1996) also pointed out that because it is more difficult for companies with severe information asymmetry to enter the capital market, these companies should hold more cash. Otherwise, when the information asymmetry is serious, the cash shortage will force the company to reduce investment and may face greater costs. For example, if the information asymmetry is serious, enterprises with higher R&D expenses will have a higher cost of getting into financial difficulties, so they must hold more cash.

In the trade-off theory model and information asymmetry model (pecking order theory model), the relationship between the same factor and cash holdings is different, even completely opposite. In the trade-off theory model, enterprise scale and cash flow are negatively correlated with cash holding level, while in the information asymmetry model, they are positively correlated. The relationship between financial leverage and cash holdings is not clear in the trade-off theory model, but it is negatively correlated in the information asymmetry model.

(C) the theoretical model of agency cost

1. The agency theory of manager's agency cost model holds that due to the existence of information asymmetry, there is a serious interest conflict between managers and shareholders, which leads managers to engage in some behaviors that increase private interests or consume more extra allowances at the expense of shareholders' interests. The manager's discretionary agency cost model holds that holding a large amount of cash is an act that can increase personal interests. First of all, managers usually hate risks and hold too much cash, which is conducive to consolidating managers' vested interests and status, so companies with strong anti-takeover intentions will hold more cash. Secondly, on the one hand, the large amount of cash in managers' hands enables managers to invest in projects that are not welcome or optimistic in the capital market, thus avoiding the supervision of the capital market. On the other hand, managers hold a lot of free cash and are unwilling to give it to shareholders, giving themselves more free space to pursue their own interests.

Generally speaking, the problems caused by managers manipulating agency costs will increase the general agent cost of enterprises and reduce the value of enterprises. When the following situations exist, the management will increase the cash holdings: (1) When the external equity is very dispersed, the company will hold too much cash. The existence of major shareholders makes it easier to compete for takeover or agency. (2) Companies with low debt levels will hold too much cash. Because of its low debt, the company is rarely regulated by the capital market. (3) Those companies that protect the corporate control market by improving anti-takeover statute will hold more cash, which makes it less likely that the company will become the acquisition target. In addition, the management shareholding ratio will also have an impact on cash holdings. Management shareholding can coordinate the conflict of interests between managers and shareholders. But it also enhances the management's ability to resist external market constraints.

2. Debt agency cost model The debt agency cost model holds that when the interests of shareholders and creditors are inconsistent, or the interests of different creditors are different, agency costs will occur. Debt agency costs mainly include: due to the strict restrictions of creditors on the use of capital, such as contractual control of the company's cash flow, the business decisions of agents (managers and owners) are affected, resulting in the loss of company value, such as the loss of venture capital opportunities, the preservation of asset structure or the failure to implement favorable dividend distribution policies. The model holds that the existence of debt agency cost makes it difficult and costly for highly leveraged companies to raise funds. In order to avoid the situation that the cost of debt agency is too high to raise funds to invest in valuable projects, companies usually choose low-level financial leverage or hold more cash.

Third, enlightenment.

From the above analysis, it can be seen that the research on cash holding behavior in foreign academic circles has formed rich research results. Some scholars have done a lot of analysis on the influencing factors of cash holding behavior with existing theories, and explained them from different angles, but they have not yet reached a consensus. From our empirical research on the determinants of cash holding behavior, the trade-off theoretical model has received more support. At the same time, empirical research supports the view that the better the degree of investor protection, the less cash enterprises hold. In addition, the negative correlation between ownership concentration and cash holding level of enterprises has been unanimously supported in empirical research; However, theoretical research and experience have not yet reached a consistent conclusion as to whether the proportion of managers' shareholding is negatively correlated or non-monotonous. It remains to be seen whether the above western research conclusions can be transplanted to China, but the theoretical basis and research methods of foreign research will undoubtedly provide China with in-depth research in this field. The research questions can be: (1) whether the cash holdings of listed companies in China are moderate, and whether the factors affecting the cash holdings of enterprises conform to the western theoretical hypothesis. (2) Whether the listed companies in China hold cash in excess, what are the characteristics of the companies that hold cash in excess, and what is the impact of the company's sustained high cash holdings on the company's performance. (3) The relationship between investor protection and cash holding decision. In China, the degree of investor protection is going through a process from weak to strong. With the strengthening of investor protection, the level of cash held by enterprises will also change. (4) The relationship between corporate governance and cash holding decision. Corporate governance has always been a research topic in China, but it is mostly analyzed from the perspective of corporate performance. Therefore, studying corporate governance from the perspective of cash holding behavior and exploring the governance significance behind cash holding behavior may provide new ideas for measuring the effectiveness of corporate governance mechanism of listed companies in China.

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