Abstract
The topic of corporate cash holdings has received relatively little attention from academic researchers. However, this decision has always been at the center of interest of any company seeking to improve its performance. 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. 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). This research uses econometric models based on a positivist approach with a hypothetical-deductive method. 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.
Highlights
The interest in the problem of corporate cash holdingsUniversal Journal of Accounting and Finance 9(1): 24-32, 2021 sell assets on the market at no cost
By questioning the restrictive assumptions of neoclassical finance, recent developments in contemporary finance have revealed the motivations and consequences of holding cash. These sketches of insight are understood in terms of trade-off theory (Opler et al, 1999), hierarchical order theory (Myers and Majluf, 1984), and agency theory (Jensen, 1986)
Managers may wish to hold a high level of cash in order to serve their own interests and increase their autonomy (Opler et al, 1999). This cost resulting from agency problems between shareholders and management and the low return on cash relative to other assets of the firm are the main costs of holding cash. This theory has been confirmed by several recent empirical works (Elyasiani & Zhang, 2015; Yogesh Maheshwari & Vigneswara, 2017; Asimakopoulos, Asimakopoulos & Fernandes 2019)
Summary
Universal Journal of Accounting and Finance 9(1): 24-32, 2021 sell assets on the market at no cost. Managers may wish to hold a high level of cash in order to serve their own interests and increase their autonomy (Opler et al, 1999) This cost resulting from agency problems between shareholders and management and the low return on cash relative to other assets of the firm are the main costs of holding cash. The characteristics of the economic environment where Moroccan firms operate, namely weak creditor and shareholder protection, ineffective law enforcement, and high shareholder concentration, make Morocco an ideal setting to study this issue and offer the best territory for the establishment of several types of agency problems This is why we are working on this article in the framework of agency and free cash flow theories. We present the results and their analysis, and summarize the main results in our conclusion
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