THE PERFORMANCE OF COMPANIES AND CASH HOLDINGS DURING THE CRISIS – CHINA EVIDENCE

The effect of cash holdings on the value of a firm has attracted the attention of researchers as well as shareholders. China has been receiving more influence from the world market since it became a member of World Trade Organization (WTO) on December 11th 2001. Affected by the financial crisis in 2008, the cash holdings tend to play different roles on the valuation of a company. This paper attempts to find out whether cash holdings offer positive effects or not on corporate market valuation based on the Chinese context. We apply a modified Tobin’s Q as a measure of firm value. Furthermore, the influence of cash holdings on Tobin’s Q is analyzed for both pre and post sub-prime crisis period.