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Article
Publication date: 30 November 2022

Ruchi Moolchandani and Sujata Kar

This paper examines whether family control exerts any influence on corporate cash holdings in Indian listed firms. It also examines how this accumulated cash of family…

Abstract

Purpose

This paper examines whether family control exerts any influence on corporate cash holdings in Indian listed firms. It also examines how this accumulated cash of family firms impacts firm value.

Design/methodology/approach

The study uses dynamic panel data regression estimated using two-step system generalized method of moments (GMM) on S&P BSE 500 firms during 2009–2018 for testing the repercussions of family control on the cash levels of a firm. Further, fixed effects regression has been employed for the valuation analysis.

Findings

Estimation results showed that family control negatively impacts cash holdings in Indian firms. Further, the cash accumulation by family firms adversely affects the market valuation of the firm. These findings signal a principal–principal (P-P) agency conflict in Indian family firms, i.e. friction between family owners and minority shareholders' interests. Minority shareholders fear that a part of the cash reserves will be used by family members for personal benefits. Thus, they discount cash reserves in family firms.

Originality/value

The study adds to the determinants of corporate cash holdings in emerging markets. To the best of the authors’ knowledge, this is the first study from India investigating family control as a determinant of cash policy. It sheds light on the P-P agency conflict in Indian family firms. P-P agency conflict is less researched in cash holdings literature as opposed to the principal–agent managerial disputes. Also, the study uses a more comprehensive definition of family control rather than just considering the ownership as used in prior cash holding research.

Details

International Journal of Emerging Markets, vol. 17 no. 10
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 1 November 2022

Efstathios Magerakis

This paper aims to consider the effect of the chief executive officer’s (CEO) ability on the amount of cash stock at the firm level.

Abstract

Purpose

This paper aims to consider the effect of the chief executive officer’s (CEO) ability on the amount of cash stock at the firm level.

Design/methodology/approach

The empirical hypothesis is examined via fixed-effect regression models using data from US incorporated firms.

Findings

Consistent with the upper echelon theory and cash holding motives, the results reveal that able CEOs are associated with an increased level of cash stock, ceteris paribus. Further analysis shows that the association between CEO ability and firm cash holding is more profound for financially sound firms. The authors also demonstrate that firm size significantly affects the relationship between CEO ability and cash management. The results are robust to various sensitivity analyses and additional tests.

Research limitations/implications

This work is subject to limitations inherent in the use of relevant proxies. Thus, the study implements several model specifications to ensure the validity of findings in a more generic context. Future research should investigate the board structure’s role and the monitoring procedures on the CEOs’ cash holding behavior as a natural extension to this study.

Practical implications

The insights derived from the study are expected to advance the decision-making process of cash policies and CEO selection for shareholders, business executives and investment strategists.

Originality/value

Overall, the study provides new evidence that CEO ability is a contingent factor of corporate cash stock.

Details

Review of Accounting and Finance, vol. 21 no. 5
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 10 November 2022

Linda Putri Nadia and Mamduh M. Hanafi

This study aims to examine the influence of board gender diversity on dividend policy and cash holdings in several emerging economies. This study also investigates the…

Abstract

Purpose

This study aims to examine the influence of board gender diversity on dividend policy and cash holdings in several emerging economies. This study also investigates the nonlinear impact of women on dividend policy and cash holdings and the differences between countries with one- and two-tier board systems.

Design/methodology/approach

The sample includes 103 firms listed in the Association of South East Asian Nations (ASEAN) countries of Indonesia, Malaysia, the Philippines and Thailand. The data represent all industries except the financial industry. The sample period is the 10 financial years from 2010 to 2019. This study analyzed unbalanced panel data with fixed effect specifications for baseline model analysis.

Findings

This study finds robust evidence indicating that women’s presence negatively influences dividends and positively influences cash holdings. The findings in the additional analysis are significant and show a nonlinear relationship, supporting the substitution hypothesis.

Practical implications

The findings of this paper certainly provided a valuable contribution as a useful empirical guide for policy decision-makers in developing countries, regulators and corporate decision-makers related to board gender diversity. Developed countries have implemented a minimum quota of women boards in the composition of the board of directors. However, there are still few developing countries that implement these policies. Women can reflect or show their values in corporate governance, such as being careful in making decisions and being conservative about risk. These guides policymakers in implementing a minimum quota of women in the composition of the board of directors.

Originality/value

This study contributes to the debate on the impact of gender diversity on dividends and cash holdings, especially in ASEAN emerging economies because there is a notable empirical gap relative to developed countries. Moreover, this study contributes to the necessary nuanced understanding of the substitution hypothesis in emerging economies. The results also support the explanation of critical mass theory to account for the nonlinear relationship between the number of women board members and dividends and cash holdings.

Details

Corporate Governance: The International Journal of Business in Society, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1472-0701

Keywords

Open Access
Article
Publication date: 18 October 2022

Tingting Huang, Yilin Pan, Kai Zhu and Xinyuan Chen

This paper aims to study the impact of human resource heterogeneity on firms’ cash-holding policies.

Abstract

Purpose

This paper aims to study the impact of human resource heterogeneity on firms’ cash-holding policies.

Design/methodology/approach

The authors construct a proxy for human resource heterogeneity using the dissimilarity in employees’ skill structure between the firm and its peers in the same industry.

Findings

The authors report evidence that firms with heterogeneous human resources hold more cash than other firms. This effect is more pronounced in labor-intensive firms and firms more susceptible to hold-up by employees, i.e. firms located in regions with more labor disputes and firms surrounded by more external employment opportunities. In addition, the authors demonstrate that high cash holdings triggered by human resource heterogeneity reduce the scale and efficiency of firms’ capital investment.

Originality/value

Our study highlights the role of human resource heterogeneity in determining firms’ cash policies. This paper adds to the understanding of labor adjustment costs within the firm and provides insights into firms’ cash-holding decisions.

Details

China Accounting and Finance Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1029-807X

Keywords

Article
Publication date: 19 October 2022

Faisal Alnori and Abdullah Bugshan

This paper aims to provide a comprehensive investigation into the different roles of cash holding decisions on Shariah-compliant and non-Shariah-compliant firms…

Abstract

Purpose

This paper aims to provide a comprehensive investigation into the different roles of cash holding decisions on Shariah-compliant and non-Shariah-compliant firms’ performance. Therefore, the objective of this study is to analyze the significant relationship of liquidity on Shariah- and non-Shariah-compliant corporations.

Design/methodology/approach

This study sample includes non-financial firms listed in six Gulf Cooperation Council (GCC) markets between 2005 and 2019. The study uses panel fixed effects and the dynamic generalized method of moments (system-GMM) models to test the relationship between cash holding and firm performance. The firms’ performance is measured using four widely used proxies representing book and market measures of performance including return on assets, return on equity, earnings before interest and tax to total assets and Tobin’s Q.

Findings

The results explore that the nature of the relationship between cash holdings and performance varies across Shariah-compliant and non-Shariah-compliant firms. Specifically, cash holdings are positively and significantly related to Shariah-compliant firms’ performance. However, cash reserves are not significantly related to conventional firms’ performance. These findings indicate that Shariah-compliant firms rely more on their cash holdings to avoid costly and less available external financing, meet everyday business needs and invest in profitable projects. In contrast, the value for cash holding is less important for non-Shariah-compliant firms, as their external financing options are less restricted compared to Shariah-compliant firms.

Research limitations/implications

This study is not free from limitations. More specifically, the sample of this study comprises of firms listed in GCC countries, which share common features. It would be interesting for future research to examine the linkage between cash holdings and Shariah-compliant and conventional firms’ performance by applying a larger sample, such as firms located in countries of the Organization of Islamic Cooperation.

Practical implications

The findings of this paper provide useful insights for managers and investors on the important role of cash management for Shariah-compliant firms. Policymakers and bankers need to develop Shariah-based financial products to ease Islamic financing sources. Moreover, the findings of this paper call for more research on the importance of liquidity management for Shariah-compliant firms.

Originality/value

This study extends the Islamic finance literature by exploring the key role of cash holdings to Shariah-compliant firms. To the best of the authors’ knowledge, this study is the first study to investigate cash holdings and performance between Shariah-compliant and non-Shariah-compliant firms.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 25 October 2022

Dorra Talbi and Ines Menchaoui

The purpose of this study is to examine the impact of board attributes and managerial ownership on cash holdings.

Abstract

Purpose

The purpose of this study is to examine the impact of board attributes and managerial ownership on cash holdings.

Design/methodology/approach

The present study examines a sample of 70 listed firms in Saudi Arabia observed during the period stretching from 2006 to 2016. To test the hypotheses, the authors used generalized method of moments and quantile regressions.

Findings

The empirical results reveal that corporate governance (CG) mechanisms are inefficient in the Saudi context. In fact, the authors found that board size, board independence, duality and managerial ownership impact positively and significantly cash holdings. Additionally, quantile regressions confirm the results that at certain thresholds, CG mechanisms are not efficient in protecting shareholders’ interests. Shariah compliance is found to moderate negatively and significantly the studied relationship.

Originality/value

This study helps to not only clarify and help decision-makers to see the importance of corporate cash management but also to identify the limits of the CG mechanisms put in place.

Details

Corporate Governance: The International Journal of Business in Society, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 6 September 2022

Vedika Saxena and Seshadev Sahoo

This study investigates the factors affecting corporate cash holdings for a sample of 598 Indian Micro, small and medium-sized enterprises (MSMEs) for nine years (2011–2020).

Abstract

Purpose

This study investigates the factors affecting corporate cash holdings for a sample of 598 Indian Micro, small and medium-sized enterprises (MSMEs) for nine years (2011–2020).

Design/methodology/approach

The system generalized method of moments (GMM) approach is used to examine the determinants of cash holdings in the Indian MSME context.

Findings

The article shows liquidity, cash flow, leverage, firm size, probability of financial distress and cash flow volatility significant in explaining cash holding decisions for MSMEs in India. No evidence of firm age and growth opportunities as determinants of cash holdings in Indian MSMEs has been found. In addition, strong evidence of cash flow volatility, cash flow and liquidity in differentiating the cash holding decisions in the service and manufacturing industry has been documented.

Originality/value

While earlier research has addressed this problem in developed nations, this is the first study that fulfills the need to investigate the variables that influence MSMEs' cash holding decisions in a developing economy like India.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 16 August 2022

Hamza Almustafa and Ismail Kalash

This paper investigates the impact of financial leverage on corporate cash holdings in the Middle East and North African (MENA) emerging markets.

Abstract

Purpose

This paper investigates the impact of financial leverage on corporate cash holdings in the Middle East and North African (MENA) emerging markets.

Design/methodology/approach

The author applies the dynamic modeling approach to data from nonfinancial firms listed in 10 MENA countries between 2010 and 2019. The empirical model avoids the shortcomings of the prior literature by including indicators of the dynamics of the financial leverage to account for its persistence in the corporate cash holdings reserves.

Findings

This research reports a significant negative relationship between corporate cash holdings and financial leverage. The results support the pecking order model, suggesting that leverage can be regarded as a substitute for holding a larger amount of cash and marketable securities. The author argues that the negative relationship between financial leverage and corporate cash holdings reinforces the precautionary motive to have internal cash reserves rather than external debt to support capital and investment activities by firms in the MENA emerging markets.

Practical implications

The results of this research provide important insights into cash and capital structure management for nonfinancial listed firms in the MENA emerging markets. Specifically, the paper will help managers to understand the dynamic financial leverage determinants of holding cash in corporations in the MENA emerging markets and encourage policymakers to financially determine the corporate capital structure and cash holdings based on cost and benefits. Managing the firm's capital structure and cash holdings based on trade-offs between costs and benefits would enhance operating cash flow which may play an important role in creating value for shareholders.

Originality/value

Prior studies have commonly been concerned with the determinants of corporate cash holdings, but few have investigated the dynamic financial leverage determinants of corporate cash holdings. This paper draws attention to this issue within the context of MENA emerging markets. To the authors' best knowledge, this is the first study that explores the relationship between cash holdings and financial leverage in MENA emerging markets.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 3 June 2022

Omar Ikbal Tawfik, Hamada Elsaid Elmaasrawy and Khaldoon Albitar

This study aims to investigate the relationship between political connections, financing decisions and cash holding.

Abstract

Purpose

This study aims to investigate the relationship between political connections, financing decisions and cash holding.

Design/methodology/approach

Based on historical data from 181 active non-financial firms listed on Gulf Cooperation Council (GCC) Stock Exchange Markets during the period of 2009–2016, this study uses ordinary least squares and dynamic system-generalized method of moments to test the research hypotheses. The final data set comprises a total of 1,448 firm-year observations from ten major non-financial industry classifications.

Findings

This study finds a positive relationship between political connections and each of internal financing proxied by retained earnings ratio and external financing proxied by short- and long-term debt to total asset. The findings also show a positive relationship between political connections and cash holding.

Practical implications

The findings of the study provide a better understanding of the role of politically connected directors in financing decisions and cash holding in the GCC. Investors can consider the presence of royal family members in the board of directors when making investment decision. Policymakers are encouraged to develop more effective policies that encourage listed firms to provide information on the political positions of the board of directors, managers and major shareholders/owners of companies.

Originality/value

This study contributes to the literature by providing empirical evidence on the relationship between political connections and financing decisions by focusing on the GCC region. This study also highlights that boards in connected firms in the GCC have lower monitoring role owing to political interventions, and that connected firms face higher agency problems as they have weak governance and boards compared with non-connected firms.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 29 December 2021

Mohammad Hendijani Zadeh, Michel Magnan, Denis Cormier and Ahmad Hammami

This article aims to explore whether a firm's corporate social responsibility (CSR) transparency alleviates a firm's cash holdings.

Abstract

Purpose

This article aims to explore whether a firm's corporate social responsibility (CSR) transparency alleviates a firm's cash holdings.

Design/methodology/approach

CSR transparency ratings encompass both the quantity and the quality of CSR practices, as validated by Bloomberg. While based upon firm-specific disclosure, transparency ratings impound additional information gathered independently by Bloomberg and thus bridge the gap between CSR disclosure and CSR performance. The authors use ordinary least squares estimators, and the authors concentrate on a panel of S&P 500 index companies over the period of 2012–2018 to examine the effect of CSR transparency on corporate cash holdings.

Findings

The authors document that a higher level of CSR transparency induces a lower level of corporate cash holdings. Additional results imply that this negative relationship is more pronounced for firms suffering from high information asymmetry, with low financial reporting quality and for those with weak governance. Further analyses document that higher CSR transparency can help firms to enjoy lower cost of debt and to be less financially constrained, enabling high CSR transparent firms to obtain external financing more easily and at a lower cost, thus lowering the need to hoard cash. Ultimately, the study findings suggest that CSR transparency increases the market value relevance of an additional dollar in cash holdings.

Originality/value

The authors contribute to both research streams of CSR and corporate cash holdings as they provide evidence about the influence of CSR transparency as a monitoring and insurance-like mechanism on corporate cash holdings.

Details

International Journal of Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1743-9132

Keywords

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