Corporate Governance and Cash Holdings in Emerging Market: Evidence from Indonesia

Abstract

ABSTRACT: The purpose of this study is to find out the influence of corporate governance on cash holdings in non-financial companies that are listed in the Indonesian Stock Exchange for the period 2010-2017. The method used in this study is a quantitative method equipped with purposive sampling, the list used is time-series data obtained from the Indonesian Stock Exchange. The data analysis technique used in this study, which was based on the result of the research model test, is the fixed effect model. Companies that have poor corporate governance tend to accumulate cash (cash holdings) compared to companies that have good corporate governance. The result of this study supports the flexibility hypothesis that companies in Indonesia tend to hoard cash as in Singapore and Malaysia, even though they do not have a single ownership structure. This possibility is influenced by a weak legal system, where the legal system in Indonesia does not act as a supervisor of corporate management practices, so that the company without control from the regulator. The government as the regulator only has the role of providing a legal umbrella and full corporate governance submitted to each company. In this sense, there are no standards used as references by the companies in corporate governance. It implies that the company with the poorer implementation of corporate governance tends to hold the cash compared to the company with the better corporate governance. This study may contribute more to the comprehensive review and the development of financial management discipline. KEY WORDS: Flexibility Hypothesis; Corporate Governance; Cash Holdings; Family Pyramid; Sales Growth; Capital Expenditure . About the Authors: Prof. Dr. Nugraha is a Lecturer at the FPEB UPI (Faculty of Economic and Business Education, Indonesia University of Education), Jalan Dr. Setiabudhi No.229 Bandung 40154, West Java, Indonesia. Indri Ayu Lestari is a Student at the SPs (School of Postgraduate Studies) UPI in Bandung, West Java, Indonesia. For academic interests, the Authors are able to be contacted via e-mail address at: nugraha@upi.edu and indri.ayu@student.upi.edu Suggested Citation: Nugraha & Indri Ayu Lestari. (2021). “Corporate Governance and Cash Holdings in Emerging Market: Evidence from Indonesia” in EDUCARE: International Journal for Educational Studies , Volume 13(2), February, pp.93-116. Bandung, Indonesia: Minda Masagi Press owned by ASPENSI with ISSN 1979-7877 (print) and ISSN 2621-587X (online). Article Timeline: Accepted (December 27, 2020); Revised (January 25, 2021); and Published (February 28, 2021).