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Economic Cycle,Cash Holding and Enterprise Investment

Author: XiangZuoPing
Tutor: HuHuaXia
School: Wuhan University of Technology
Course: Accounting
Keywords: Economic Cycle Cash holding Enterprise Investment Cash FlowSensitivity
CLC: F275
Type: Master's thesis
Year: 2013
Downloads: 21
Quote: 0
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Abstract


With the diversification of business activity, the decision of enterprise investment gets much more attention by enterprise managers and investors, among the various factors influencing the enterprise investment behavior, cash holding, as a means of internal financing, has the crucial impact. So in recent years, many scholars have studied on the relationship between the cash holding and corporate investment behavior, the results showed that, cash holding has significantly influence on enterprise investment behavior. Some scholars, however, have proved that corporate cash holding has a close relationship with the economic cycle which is the representative variable of the macroeconomic environment, that is to say, in the different stages of the economic cycle, corporate cash holding will change obviously. This change is bound to produce a significant influence on the enterprise investment behavior, but few scholars has brought the economic cycle into research framework to explore the relationship between corporate cash holding and enterprise investment behavior at the different stages of economic cycle. Therefore, the purpose of this thesis is to study the corporate cash holding’s influence on enterprise investment behavior at the different stages of economic cycle by means of combining theoretical analysis and empirical analysis.This thesis follows the research path of the basic theory; mechanism analysis and empirical analysis to study the role of cash holding on corporate investment behavior at different stages of the economic cycle. First of all, in the part of theory analysis, according to related theory research on the economic cycle theory, the basic theory of corporate cash holding and corporate investment which are put forward by many scholars in the field of economics and finance, based on the information asymmetry theory, the optimal sequence financing theory and principal-agent theory, the article explores the mechanism of action between corporate cash holding and the economic cycle, the pathways of the economic cycle’s influence on the enterprise investment behavior, the theoretical analysis of the relationship between cash holding and enterprise investment behavior, and the influence of cash holding on enterprise investment behavior during different stages of economic cycle. Then, according to the mechanism analysis, we raise the research hypothesis, choose and filter the A-share listed companies which are listed in Shanghai and Shenzhen securities exchange before2000as research samples, using the data from2000-2011, the article analyzes cash holding’s influence on enterprise investment behavior at different stages of economic cycle. The empirical results show that during the expansion phase of economic cycle, the enterprise has a tendency to abundance investment due to the serious agency problem, and cash holding will further aggravate the excessive investment behavior, in the austerity phase of economic cycle, the enterprise faces the problem of insufficient investment due to the serious problem of information asymmetry, and cash holding will play a role of hedge to relieve the shortage problem of enterprise investment.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management
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