Corporate governance, financial constraint, and value of cash holdings

This book takes account of government influence, and finds that compared with that of private firms, the value of cash holdings of SOEs is lower. The main reason for this observation is that SOEs have more serious agency problems. The difference has no significant relation with financial constraint. Furthermore, this present study distinguishes among SOEs, classifying SOEs according to levels of government controllers. This study finds that value of cash holdings for central government-controlled SOEs is higher than that for local government-controlled SOEs. The main reason for this observation is that central government-controlled SOEs are relatively better governed and have better growth prospects compared with local government-controlled SOEs. This study contributes to the existing literature on value of cash holdings by considering the emerging market institutional background in China. Findings of this study encourage managers to implement prudent and flexible financial policies and investors to evaluate liquid assets of firms.