Agency theory and corporate cash holding decisions

Abstract

Purpose: This article aims to examine the relationship between agency costs related to managerial discretion and cash holdings by Moroccan companies. In order to do this we will mobilize both agency theory and free cash flow theory. To date, and to our knowledge, no research has been conducted on the cash flow of Moroccan companies in the light of agency theory Research methodology: This research uses econometric models based on a positivist approach with a hypothetical-deductive method. Results: Our results show that there is a strong positive relationship between cash holdings and cash flow. It also turns out that the liquidity of these companies is significantly negatively affected by the debt leverage and the growth opportunities of the company. Limitations: we have limited ourselves to the examination of the intrinsic characteristics of the company. We omitted the institutional and legal framework. This would have required an international sample with different jurisdictions and degrees of shareholder protection. Contribution: This study contributes to cash holdings research in Morocco by exploring the reasons for holding cash through a sample of Moroccan non-financial companies that are listed on the Casablanca Stock Exchange for a period of 12 years (from 2007 to 2018). Keywords: Cash holdings, Morocco, Agency theory, Free cash flow theory, Firm-specific variables