Cash Holding, Dividend Policy and Cash Flow Management: Dynamic Interaction Analysis Based on Chinese Listed Companies

This paper puts forward a cash flow Panel Vector Auto-regression (PVAR) model to study dynamic interaction effect among cash holding, cash dividend and financing cash flow in Chinese listed manufacturing firms. We find that: cash holding is negatively affected by cash dividend and positively by financing cash flow, while cash dividend is negatively affected by cash holding and positively by financing cash flow, and financing cash flow is positively affected by cash dividend but not by cash holding. Furthermore, cash holding exhibits more lasting and significant responses to cash dividend rather than financing cash flow; cash dividend is more insensitive to cash holding rather than financing cash flow; and financing cash flow exists lag effects on cash holding and dividend. The findings above examine and expand the agency theory, trade-off theory and signaling theory though dynamic analyses.