Abstract: Cash holdings support enterprises' rate war. Changing product markup is an important aspect in pricing decision and affects enterprises' competitive performance. This paper focuses on the roles of cash holdings on markup changes and the role of markup changes on product market competition using the manufacturing listed companies. Meanwhile, how much the effect differs between economic contractions and expansions is tested. Finally Causal-Steps is applied to further verify the path that cash holdings may affect markup changes first, and then markup changes act on product market competition. It is found that firms with rich cash holdings are more likely to lower their product markup and then achieve better performance. But the effect is not constant across the business cycle. Moreover, markup changes play an intermediary effect in the process of cash's affecting firm performance. That is, cash holdings can support enterprises' competitive performance by price competition. This paper enriches the existing literature and puts forward valuable theoretical and empirical reference to improve the competitiveness of Chinese enterprises.

Key words: cash holdings, markup changes, business cycle, product market performance, mediating effect