The Relationship between Cash Holdings and Cash Flow Based on Chinese Market Data

Cash is the most liquid and least profitable asset. In order to maximize shareholder value, transaction costs theory and asymmetric information theory discuss the relationship between cash holdings and cash flows, that is static cash and dynamic cash, but the two theories get contradictory conclusions. In this paper the relationship between cash holdings and cash flows was examined by empirical study based on 5900 data sample of Chinese listed firms. The results show that cash holdings is significant positive related to net operating cash flow, net investing cash flow and net financing cash flow, and the larger the scale of the company, the greater the sensitivity of cash holdings to net cash flow from investing activities.