EVA Assessment and Cash Holdings: Evidence from Chinese Central SOEs

Abstract

Abstract:

The SASAC (State-owned Assets Supervision and Administration Commission) of the State Council launched the EVA assessment to central SOEs from 2010. This systemic adjustment of assessment mechanism must initiate a number of corporate behavior changes. However, until now, the existing researches have not had a good understanding of the consequences about it. With the sample of firms listed in the Shanghai and Shenzhen Exchanges from 2007 to 2012, this paper tests the relationship among EVA assessment, cash holdings and cash value. The results show that after the launch of the EVA assessment, the level of cash holding of central SOEs drops, and the value of cash rises. In addition, this effect mainly exists in the situation where managers' coordination effect is low. When a high percentage of shares are held by chairman and CEO, the above effect doesn't exist. Under several robust checks such as excess cash holding and test period changing, the findings are stable. With the opportunity of management performance assessment changing, this paper extends the relevant research of cash holding from incentive angle. Since the paper affirms the positive effect of EVA assessment on cash holdings, it might also provide implications to a wider range of practical popularization of EVA assessment in the future.

Key words: central SOEs, EVA assessment, cash holdings, cash value, coordination effect

Liang Shangkun, Pan Jun, Bai Yu. EVA Assessment and Cash Holdings: Evidence from Chinese Central SOEs[J]. , 2019, 31(12): 233-249.

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