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Discrete Dynamics in Nature and Society
Volume 2014 (2014), Article ID 897278, 12 pages
http://dx.doi.org/10.1155/2014/897278
Research Article

An Empirical Study on Listed Company’s Value of Cash Holdings: An Information Asymmetry Perspective

1School of Mathematics and Computing Science, Changsha University of Science and Technology, Changsha 410004, China
2Academy of Mathematics and Systems Science, Chinese Academy of Science, Beijing 10090, China
3School of Economics and Management, Changsha University of Science and Technology, Changsha 410114, China
4School of Business, Hunan University, Changsha 410082, China

Received 22 January 2014; Accepted 8 April 2014; Published 13 May 2014

Academic Editor: Fenghua Wen

Copyright © 2014 Chuangxia Huang et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

The value of a company’s cash holdings is currently a hot issue in corporate finance research. Current studies have not reached a unified conclusion. Moreover, no one has ever studied that from the perspective of information asymmetry. However, there still exist disputes about the measurement of the degree of information asymmetry. Previous studies mostly adopt single index to analysis this issue, and the economic meaning it represents only reflects some information of asymmetric information, so it was one-sided and the conclusion also differ. Drawing on the market microstructure and the index of information asymmetry of managers and investors, this paper constructs a new proxy for information asymmetry based on the principal component analysis. We find that a company’s value of cash holdings decreases increasingly with its level of information asymmetry, and the relationship between information asymmetry and the value of cash holdings is nonlinear.