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Article
Publication date: 17 August 2021

Yaoqin Li, Xichan Chen, Wanli Li and Xixiong Xu

This study explores whether and how Buddhism impacts corporate cash holdings. Buddhist culture affects investors' perception of how cash is deployed and then influences…

Abstract

Purpose

This study explores whether and how Buddhism impacts corporate cash holdings. Buddhist culture affects investors' perception of how cash is deployed and then influences corporate cash holdings. This study first examines the impact of Buddhism on corporate cash holdings and then investigates whether formal governance mechanisms such as legal institutions and institutional ownership influence the relationship between Buddhism and corporate cash holdings.

Design/methodology/approach

The authors conduct empirical tests with data on Chinese listed companies between 2006 and 2019. Buddhism is measured with the natural logarithm of the number of Buddhist temples within a radius of a certain distance around a firm's headquarters. The authors adopt the OLS method to regress and take the 2SLS method, Heckman selection model and FEVD approach to address the endogeneity issue.

Findings

The results show a positive relationship between Buddhism and corporate cash holdings. This positive relation is more prominent for firms located in regions with weak legal institutions and for firms with low institutional ownership. Further analysis shows that Buddhism works through the channel of alleviating agency problems and finally improves the value of cash to investors.

Research limitations/implications

The authors’ findings have important implications. First, this study provides inspiration for incorporating the ethical values of traditional cultures, such as Buddhism, into the corporate governance system. Second, the findings imply that informal institutions can influence corporate financial decisions beyond the effect of formal institutions, suggesting that informal systems should be emphasized when dealing with business affairs in countries where legal institutions are relatively weak. Third, the results suggest the significance of encouraging research on religious culture to explore its active role in corporate governance.

Originality/value

This study illustrates the positive value of religious culture in advancing corporate governance by relating Buddhism to corporate cash holdings based on the explanation of investors' perception. It makes a marginal contribution to the literature that investigates the determinants of cash policies and explores the firm-level consequences of religious culture, adding to the research area of culture and corporate finance.

Details

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

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Article
Publication date: 29 July 2021

Moncef Guizani and Ahdi Noomen Ajmi

This study aims to investigate the influence of macroeconomic conditions on corporate cash holdings in terms of their influence on the level of cash and the speed of…

Abstract

Purpose

This study aims to investigate the influence of macroeconomic conditions on corporate cash holdings in terms of their influence on the level of cash and the speed of adjustment of cash to target levels in the Gulf Cooperation Council countries (GCC).

Design/methodology/approach

The study employs both static and dynamic regression analyses considering a sample of 2,878 firm-year observations drawn from stock markets in GCC countries over the 2010–2018 period.

Findings

Consistent with the precautionary motive, the results show that GCC firms tend to accumulate cash reserves in weak economic periods. Evidence also reveals that the estimated adjustment coefficients from dynamic panel models show that GCC firms adjust more slowly toward their target cash ratio in periods of unfavorable economic conditions.

Practical implications

This study has important implications for managers, policymakers and regulators. For managers, the study is an important reference to understand and design cash management policies by considering financial constraints imposed by macroeconomic conditions. In particular, managers should pay more attention to periods of credit crunch and weak economic conditions in which firms may be exposed to greater bankruptcy risks. For policymakers and regulators, this study may be useful in assessing the effect of macroeconomic factors on firm's cash holding decision. Therefore, in an effort to increase the supply of external financing available to firms, policymakers may devise investment friendly environment by controlling macroeconomic factors.

Originality/value

This paper offers some insights on the macro determinants of cash holdings by investigating emerging economies. It explores the role of macroeconomic conditions on corporate cash holdings in terms of their influence on the costs of external funds and financial constraints.

Details

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

Keywords

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Article
Publication date: 12 July 2021

Moncef Guizani and Gaafar Abdalkrim

The purpose of this paper is to investigate the effect of Shariah compliance status on corporate cash holding decision.

Abstract

Purpose

The purpose of this paper is to investigate the effect of Shariah compliance status on corporate cash holding decision.

Design/methodology/approach

This study applies ordinary least square and generalized method of moments regression models for a sample of 178 Malaysian listed firms over the period 2008–2017.

Findings

The results show that Shariah compliance has positive impact on the level of cash reserves of firms. It is also found that Shariah-compliant (SC) firms quickly adjust their level of cash holdings toward a target level than non–Shariah-compliant (NSC) firms. These results can be explained by the restrictions imposed by Shariah rules on firms to sustain their compliance status. Further, the results reveal that SC firms are likely to hold more cash out of their cash flows. This is the expected result, as the firms operating within the ambit of Shariah rulings and regulations face external financing constraints.

Practical implications

This study has important implications for managers, policymakers and regulators. For managers, the study is an important reference to understand and design cash management policies by considering restrictions imposed by Shariah regulations. In particular, managers should pay more attention to periods of credit crunch and weak economic conditions in which SC firms may be exposed to greater bankruptcy risks. For policymakers and regulators, this study may be useful in assessing the effect of the restrictions imposed by Shariah law on firm’s cash holding decision. Therefore, in an effort to increase the supply of external financing available to SC firms, policymakers should encourage the issuing of Islamic financial products.

Originality/value

This paper focuses on SC firms where financial constraints are bound to be more stringent than for NSC firms. It explores the implications of relevant Islamic principles on corporate cash holdings.

Details

Pacific Accounting Review, vol. 33 no. 4
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 26 May 2021

Ajid Ur Rehman, Tanveer Ahmad, Shahzad Hussain and Shoaib Hassan

The purpose of this paper is to investigate how corporate cash holdings changes across firm life cycle and how firms undergo heterogeneous dynamic cash adjustment as they…

Abstract

Purpose

The purpose of this paper is to investigate how corporate cash holdings changes across firm life cycle and how firms undergo heterogeneous dynamic cash adjustment as they advance from one stage to the next stage.

Design/methodology/approach

This study uses an extensive data set of 2,994 Chinese A-listed firms. The authors use generalized method of moments (GMM) and Fisher Panel unit root testing to investigate the targeting behavior of Chinese firms.

Findings

The uni-variate investigation reveals that firms in the growth stage exhibits the highest cash levels and firms in the decline stage report the lowest cash levels. As growth firms have high investment needs, they may require raising external capital to meet investment needs. To avoid the costly external financing, firms in growth stage tend to hold more cash. The GMM estimation reveals that along all the phases of firm life cycle there are evidences of trade-off behavior of corporate cash holdings. The authors report that adjustment rate increases as firms enters into the growth stage.

Practical implications

The findings provide both theoretical and practical insight to align cash policies with the available strategic choices along firm life cycle in an emerging market characterized by market imperfections.

Originality/value

The study is unique from the context that it is applying robust methodology to one of rarely investigated area in corporate cash policy. The peculiar Chinese study setting characterized by higher information asymmetry, high cost of external financing and heterogeneous access to financing sources provide theoretical and empirical underpinnings to investigate and gain insight about how corporate cash policy can be aligned with strategic choices available across different stages of life cycle.

Details

Journal of Asia Business Studies, vol. 15 no. 4
Type: Research Article
ISSN: 1558-7894

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Article
Publication date: 24 March 2021

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. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 25 March 2021

Ahmed Imran Hunjra, Tahar Tayachi, Rashid Mehmood and Anwaar Hussain

Economic risk plays a vital role in firm's cash holdings. We aim to determine the impact of economic risk on the firm's cash holdings.

Abstract

Purpose

Economic risk plays a vital role in firm's cash holdings. We aim to determine the impact of economic risk on the firm's cash holdings.

Design/methodology/approach

The data is collected from the DataStream from 2002 to 2018, which covers 552 listed firms in the manufacturing sector of Pakistan, Sri Lanka, India and Bangladesh. We apply a two-step dynamic panel estimation to analyze the results.

Findings

We use the variance of inflation and variance of interest rate as proxies of economic risk. Our results show that variance of inflation has a significant and negative effect while the variance of interest rate has a significant and positive effect on firms' cash holdings in selected countries. Furthermore, we find economic risk negatively affects the firm's cash holdings in the country-wise analysis. Firms should maintain a reasonable amount of cash reserves to handle uncertain situations.

Originality/value

This study may provide insights to financial decision-makers of a firm for better cash management according the economic conditions of the country.

Details

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

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Article
Publication date: 11 April 2021

Suherman Suherman, Berto Usman, Titis Fatarina Mahfirah and Renhard Vesta

This paper aims to investigate the relationship between female executives, chief executive officer (CEO) tenure and corporate cash holdings in the context of the…

Abstract

Purpose

This paper aims to investigate the relationship between female executives, chief executive officer (CEO) tenure and corporate cash holdings in the context of the developing Southeast Asian capital market (Indonesia).

Design/methodology/approach

The sample was screened from 231 publicly listed companies in the Indonesian Stock Exchange. The period of observation was 2011–2017. Two measures were applied for corporate cash holdings: the ratio of cash and cash equivalent to total assets and cash and cash equivalent to net assets. Three surrogate indicators were used for female executives: female CEO, the proportion of female members in the board of management and the number of female members in the board of management. CEO tenure is the length of time a CEO has been a member of the board of management. This study uses panel data regression analysis, including the fixed effect model with clustered standard errors.

Findings

The empirical evidence indicates that female executives and CEO tenure are positively and negatively associated with corporate cash holdings, respectively, and both are significantly related. Additional analysis using lagged independent variables remains consistent with the main analysis, suggesting that corporate cash holding becomes higher as a female presence in the board of management increases.

Research limitations/implications

Empirical tests set in Indonesia suggest that female executives are more conservative and risk-averse, thereby holding more cash with a precautionary motive. The findings also imply that CEOs with long tenure focus on long-term performance such as increasing research and development investments or capital expenditure, thus holding less cash. Accordingly, policymakers and regulators should promote diversity issues proportionally and advance to the board level.

Originality/value

This study contributes to the field of executive and CEO studies by enriching the empirical findings in related topics. In addition, to the best of the authors’ knowledge, this is one of the first studies applying two measures of cash holdings in the setting of a developing Southeast Asian capital market (Indonesia).

Details

Corporate Governance: The International Journal of Business in Society, vol. 21 no. 5
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 5 November 2020

Imad Jabbouri and Hamza Almustafa

This paper aims to document the impact of corporate cash holdings on firm performance in Middle East and North African (MENA) emerging markets. The authors also examine…

Abstract

Purpose

This paper aims to document the impact of corporate cash holdings on firm performance in Middle East and North African (MENA) emerging markets. The authors also examine how the quality of national governance shapes the interaction between corporate cash holdings and firm performance.

Design/methodology/approach

The authors employ data from non-financial firms listed on the stock markets of twelve MENA countries between 2004 and 2018. The empirical model avoids the shortcomings of the prior literature by applying a dynamic framework to the relationship between cash holdings and firm performance.

Findings

This research reports a significant positive relationship between corporate cash holdings and firm performance. The results appear to be more pronounced in countries with strong national governance and more developed institutional settings. The findings demonstrate that most benefits of corporate cash holdings can be achieved under strong institutional settings. The authors argue that the positive impact that national governance has on individual firms by reinforcing investors' protection and lowering agency problems increases the added value of cash holdings.

Practical implications

The findings should encourage local authorities and policymakers to reinforce the law and instigate new regulations to strengthen the quality of national governance and restore the integrity of local markets.

Originality/value

Prior studies have largely been silent on how national governance can shape the relationship between corporate cash holdings and firm performance. 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 interaction between cash holdings, firm performance and national governance in MENA emerging markets.

Details

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

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Article
Publication date: 5 January 2021

Emmanuel Onyebuchi Onah, Angela Ifeanyi Ujunwa, Augustine Ujunwa and Oloruntoba Samuel Ogundele

This paper aims to examine the effect of financial technology on cash holding in Nigeria.

Abstract

Purpose

This paper aims to examine the effect of financial technology on cash holding in Nigeria.

Design/methodology/approach

The authors use Pesaran et al.’s (2001) autoregressive distributed lag (ARDL) bounds test approach to cointegration to estimate the long-run relationship between four direct measures of financial technology (automated teller machine [ATM], Internet banking [IB], point of sale [POS] and mobile banking [MB]) and cash holding.

Findings

The authors find the presence of long-run negative relationship between cash holding and the four direct measures of financial technology.

Practical implications

Despite the negative effect of financial technology on cash holding, the descriptive results highlight increasing trajectory in cash holding. This suggests that structural factors such as ethical climate, literacy level, household characteristics, currency denomination structures, economic uncertainty and infrastructure deficit may account for the pervasive cash transactions in Nigeria and not necessarily the unwillingness of economic agents to use digital platform for financial transactions.

Originality/value

This study contributes to existing literature by augmenting the money demand function to accommodate direct measures of financial technology in examining the effectiveness of the policy on cash holding in Nigeria.

Details

African Journal of Economic and Management Studies, vol. 12 no. 2
Type: Research Article
ISSN: 2040-0705

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Article
Publication date: 22 May 2020

Hidetaka Mitani

The purpose of the present study is to discuss the combined effect of predation risk and firms' market power on cash holdings.

Abstract

Purpose

The purpose of the present study is to discuss the combined effect of predation risk and firms' market power on cash holdings.

Design/methodology/approach

The authors tested hypotheses by using consolidated financial data in Japanese firms.

Findings

The authors find that firms' cash holdings increase with a rise in predation risk faced by firms. However, the higher the firm's market power, the weaker the above interplay becomes. Moreover, the authors find that even when firms' investments are decreased at the industry level, firms with larger cash holdings seek to mitigate predation risk by funding strategic investments with the potential to steal rivals' market share.

Originality/value

The authors recognize the importance of a firm's market power. Take a firm's market power into consideration to analyze the mechanism of a firm's cash holdings, there is a possibility that the mechanism of a firm's cash holdings as presented by the previous studies will be changed.

Details

Managerial Finance, vol. 46 no. 7
Type: Research Article
ISSN: 0307-4358

Keywords

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