Abstract: Based on listed companies' high cash holdings and the rapid development of groups, the member companies' cash holdings by internal capital market operation, as well the different mechanism to the cash holdings in different internal governance environment from the two dimensions of financing constraints and agent conflicts are investigated. Based on empirical date sample of A-share listed companies from 2007 to 2010, it can be found that firstly, the operation of the group's internal capital market affect the cash holdings of its member companies in two ways—financing constraints and agency conflicts. On the whole, the cash holding of the group members is higher than an independent enterprise.Secondly, In different internal governance environment, the degree of the impact of cash holdings by the precautionary motive and agency motivation is different. When the agent problem is more serious, the increasing extent of cash holdings caused by the agent motivation is greater than the decreasing extent caused by the weakening of the precautionary motive, and thus results in a higher cash holdings compared to independent enterprises.At last, when the agency problem is more serious, the adjustment speed of member companies' cash holdings to the target cash holdings is slower. And the adjustment semi-long cycle is longer. The above findings enrich the corporate organization theory and corporate finance theory, and also provide new evidence of how governance mechanisms affect the companies' financial decision-making from the point of view of the operation of group's internal capital market.

Key words: control of large shareholder, operation of group’s internal capital market, cash holdings, dynamic adjustment