Abstract
The Financial Determinants of Corporate Cash Holdings: Does Sharia-Compliance Matter?
Highlights
How firms make decision for holding cash is one of the most important research topics in financial economics
This study aims to examine the financial determinants of corporate cash holding of SC and Sharia non-compliant (SNC) Malaysian firms by applying a newly developed autoregressive distributed lagged (ARDL) bound testing approach proposed by Pesaran et al (2001)
This empirical paper examines whether the most reliable corporate cash holding determinants are related to Sharia-compliance status
Summary
How firms make decision for holding cash is one of the most important research topics in financial economics. The trade-off theory states that firms set the optimal level of cash reserves by weighting the marginal costs and marginal benefits of holding cash. Under this theory, holding liquid assets is justified by two motives, namely the transaction cost motives and the precautionary motives. Contrasting with this view, the pecking order theory considers that there is no optimal level of cash holdings. Since holding cash provides more flexibility, managers would rather retain cash than increase payouts to shareholders when the firm has poor investment opportunities. When we review the literature for Sharia-compliant firms, we observe that researchers have not paid attention about which factors explain the decision of cash retention
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