The Impact of Product Market Competition on the Value of Corporate Cash Holdings: Empirical Evidence from China

Authors:Xintu Lei, Qingyuan Xu, Xiaoqian Li


This paper uses observations of Chinese listed companies in A-share markets of Shanghai and Shenzhen during 2007-2016 as research data, empirically examines the impact of product market competition on the value of corporate cash holdings. Research findings suggest that product market competition can indeed promote increase in the value of cash holdings of Chinese listed companies, such mechanism is mainly caused by the predatory effect of product market competition rather than the governance effect. Further research find that predatory effects and governance effects can be better differentiated by examining financial constraints, the predatory effect tend to be more pronounced in financial constrained companies. Compared to previous studies, this paper reveals the specific mechanism of product market competition in enhancing the value of cash holdings of Chinese listed companies, and examines the impact of financial constraints on this issue.

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