Empirical Research on the Relationship between Industry Working Capital Shortfall and Company Cash Holding in the Same Industry

Zhaohua Li,Chien-Chi Chu,Junyi Jiang,Lijuan Xia

doi:10.1155/2022/5146764

Abstract

Affected by the fluctuation of the market and economic environment during the epidemic period, the capital pressure of companies has increased sharply, which increases the possibility of risk transmission in the same industry and poses new challenges to the operation and financing of companies. From the perspective of preventive motivation of corporate cash holding, we creatively use the industry working capital shortfall as the explanatory variable to construct an Extended Cash Holding Model and a Cash Holding Value Regression Model. Taking the panel data of A-share listed companies in Shanghai and Shenzhen as samples, this paper uses the Classical Linear Regression Model and Fixed Effects Regression Model to study the relationship between industry working capital shortfall and cash holdings in the same industry, as well as the relationship between industry working capital shortfall and cash holding value. The empirical results show that industry working capital shortfall has an important impact on the cash holding level within the same industry, and the cash holding level is significantly and positively correlated with industry working capital shortfall. Moreover, this study also reveals that the industry working capital shortfall has a dual impact on cash holdings. Specifically, the higher the risk of industry working capital shortfall, the lower the value of company cash holdings. The conclusions of this paper not only extend the research on cash holding but also provide support and reference for companies to optimize the cash holding value.

Highlights

Introduction e epidemic outbreak in2019 spread all over the world
To test Hypothesis 1, this paper chooses the Ordinary Least Square (OLS) Model, the Fixed Effect Model, and Random Effect Model to fit the corporate cash holding level with the explanatory variables, and the results are shown in Table 4. en, the Hausman test (Hausman test: a method used in the regression analysis of panel data, is applied to the regression of Fixed Effect Model and Random Effect Model Regression) is carried out to test the Fixed Effect Model and Random Effect Model. e test results show that the Random Effect Model is rejected by the test, so the regression results of the Fixed Effect Model and OLS Model are adopted for further use
By observing the regression results of each variable, the positive correlation between industrial operating capital shortfall and cash holdings in OLS and Fixed Effect Models is significant at the level of 0.1%. e result indicates that when the shortage of industrial operating capitals becomes more serious, companies in the same industry tend to hold more cash

Summary

Introduction

Policies, such as staying at home and maintaining social distance, have created new challenges to the global economy. Oxford Economics predicts that the impact of the epidemic will lead to the lowest growth rate of the global economy this year since the 2008 financial crisis. Capital holdings have become a decisive source of capitals to support the operation of companies. Sufficient cash holding meets the company’s day-to-day operations such as paying wages, purchasing raw materials, and paying interests and plays a critical role in the company’s investment, financing decisions, dividend payout policy, dealing with emergencies, and so on. After the outbreak of the global economic crisis in Discrete Dynamics in Nature and Society

Objectives

Results

Conclusion