Abstract
The topic on cash holding has attracted strong debate in the field of financial management for the past half century. A number of researchers studied the topic corporate cash holding and its determinants in the past in developed economies while a little attention is given to the corporate cash holdings of developing economies. The objective of the study is to identify and measure the relationship of firm size, profitability, net working capital and leverage and their effect on corporate cash holdings. A sample of 30 textile firms of Pakistan listed on Karachi Stock Exchange (KSE) was selected for the study, for the reason of examining their relationship. Secondary data for the period 2006-2013 was selected for the study. Variance Inflation Test (VIF) was used to check the problem of multicollinearity. Multiple regression models were used to conduct the results. Results calculated by regression model show consistency with the literature available. Profitability (ROA) and firm size (FS) show a positive and significant relation with cash holding. However negative and significant relationship was found between net working capital (NWC) and leverage (LEV) with cash holding. The findings of the study will be useful for financial managers, financial practitioners, consultants and investors.
Highlights
Cash is a significant asset for many corporations
The current study aims to fill the gap by identifying corporate cash holdings determinants along their effect on textile sector in Pakistan
Following Afza and Adna [7], Anjum and Malik [14] the current study aims to identify the determinants of corporate cash holdings in textile sector of Pakistan
Summary
Cash is a significant asset for many corporations. Cash is one of the most important figures found within the assets portion in balance sheet of every firm. During the period 1950s to 1960s most of the early research efforts determined on best possible cash levels in the perspective of a short-term cash management Behind these models the main idea is that cash fulfils a shield function between uncertain and unmatched cash outflows and cash inflows, very much like the inventory of a firm do for production and output sold. On the other hand triggers opportunity costs in the form of foregone higher income on non-cash funds These two opposite effects related with corporate cash holdings have their roots in even earlier arguments by Keynes [2]. In recent times financial researchers have offered theoretical models in which corporate value and cash holdings are directly linked to each other, to incorporate liquid assets into the aim function of the firm/organization.
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