Abstract
Cash holding decision is a very crucial decision that strongly affects the performance of an organization. Corporate dynamism as a corporate governance tool was explored in this study in order to establish its relationship with cash holding decision in listed manufacturing companies in Nigeria. Board skill, female leadership, foreign directors, board ownership and directors’ compensation were used as proxies for corporate dynamism. A panel regression model was adopted in this study to examine the implication of corporate dynamism on cash holding decisions spanning six years from 2012 to 2017. Random sampling technique was employed in order to arrive at thirty firms out of thirty-seven listed manufacturing firms, which comprised industrial and consumer goods sector. Board ownership and the existence of foreign expatriates were found to have a significant effect on cash holding decisions. It is concluded that directors with significant holdings tend to be more aggressive towards activities that enhance the performance of a firm, one of which is ensuring that optimal level of cash is held at a particular point in time in order to guide against liquidity problems, which may be caused by overtrading or even keeping excess idle cash, which is supposed to be invested in profitable ventures. Also, the fact that the existence of foreign expatriates will affect cash holding decisions, which may be justified by the fact foreign expatriates are displaying expertise because of diverse experience that they have been able to gain from different parts of the world.
Highlights
The decision of cash holding is very germane to the survival and growth of a firm, and a growing literature has emerged recently to explain the implication and determinants on firms
From studies on various board attributes, in this study, agency cost motive, when a woman is included we examined five different variables that measure in the board of directors, Hilgen (2015), Thi and corporate dynamism in relation to cash holding Nhan (2016), believe that this will enhance the decision
+β6BZISEit + β7 LEVit + β8PROFit + εit, tor ownership (DOWN), director compensation (DCOM), board size (BSIZE), leverage (LEV) and where CHDit – cash and cash equivalent with re- profitability (PROF) show a mean of 0.47, 0.24, spect to firm-specific and time lag, FLit – female 0.35, 0.14, 7.9, 9.8, 0.55 and 0.07, which show that leadership with respect to firm-specific and time the sampled firm has a board size of a minimum lag, DCOMit – director compensation with re- of nine directors on the board with female ocspect to firm-specific and time lag, FDit – foreign cupying 25% and foreign directors at 35% and a directors with respect to firm-specific and time lag, well competent director with board skill of 47%
Summary
The decision of cash holding is very germane to the survival and growth of a firm, and a growing literature has emerged recently to explain the implication and determinants on firms. A recent report by Deloitte shows that there has been an increase in cash holdings over the past three decades. In the United States, Han and Box (2017) assert that US firms account for $5 trillion in cash holdings between 1990 and 2000. This amounts to 10% of the annual gross domestic product (GDP) of the US. Alam (2010) opined that Japanese firms hold $2.1 trillion in cash, which amounts to 44% of their GDP. The aforementioned numbers signify that cash holdings decisions are important to every corporate organization
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