Effects of Product Market Competition on the Relationship between Internal Control and Cash Holdings

Asymmetric information and economic uncertainty lead to more severe financial constraints for Chinese enterprises, prompting them to hold more cash in order to defend against future uncertainty and market competition. This paper uses Chinese-listed companies as a sample to analyze the relationship between internal control and cash holdings, and the results show that (1) the higher the quality of internal control, the higher the cash holdings. (2) The fierce product market competition promotes enterprises' precautionary motivation, thereby enhancing the positive impact of internal control on their cash holding levels. This paper shows how internal control affects the amount of cash held and how product market competition affects the relationship between internal control and cash holdings. This paper enriches cash-holding theoretical knowledge and helps enterprise managers make rational cash-holding decisions.