Investigating the Relationship of Corporate Cash Holdings, Corporate Governance, and Firm Performance in Malaysia

Abstract

Current practice shows that firms throughout the world are in favor of high cash holdings; yet, they are still performing well. This situation contradicts the agency and free cash flow theories, which suggest that excessive cash may increase agency costs and lower firm performance. The purpose of this study is to examine the relationship between corporate governance, cash holdings, and firm performance. Five thousand four hundred twenty observations were conducted, and a balanced panel data analysis was performed. The results indicate that corporate governance has a significant impact on cash holdings, corporate governance has a significant impact on firm performance, and cash holding has a significant impact on a firm's performance. The findings of this study do not show any evidence to support the agency and free cash flow theories among non-financial Malaysian firms listed on Bursa Malaysia. Thus, this study contributes to the finance and accounting literature by gaining a better understanding of firm performance indicators in Malaysia, specifically.