Effect of Firm Structure on Corporate Cash Holding (Evidence from Non-Financial Companies)

Abstract

The purpose of this study is to investigate the effect of firm structure (whether diversified or focused firms) on corporate cash holding. Samples of 80 non-financial companies were selected including diversified and focused firms which were listed on Karachi stock exchange for a period 7 years from 2006 to 2013. These diversified and focused firms were selected on the basis of equal proportionate method. Random effect model and descriptive statistics were used for the analysis of these variables. The results of these models showed that there is negative and significant effect of firm structure on corporate cash holding. We also find negative and significant relationship of leverage and Networking capital with the corporate cash holdings and the relation between growth opportunities and corporate cash holding was examined to be positive and significant. We also find a negative and insignificant relationship between firm size and corporate cash holding. The descriptive statistics showed that there was significant difference between the cash holding of diversified and focused firms. The diversified firms keep a smaller amount of cash as compare to the single segment companies (focused firms), which is in support of the trade-off theory. This paper contributes to current literatures with regard to organization structure (whether diversified or focused firms) on cash holding in a developing economy like Pakistan.

Net Working Capital, Capital Expenditure, Leverage, Board Size, Dan Cash Holdings

“…Faktor lain yang terdapat dalam penelitian ini adalah firm size dan profitability. Firm size ditemukan memiliki pengaruh signifikan terhadap cash holdings oleh penelitian Alzoubi (2019), Mengyun et al (2021), Magerakis et al (2015), Hunjra et al (2015), dan Khan et al (2019). Hasil penelitian Alzoubi (2019), Arfan et al (2017), Hunjra et al (2015), Mohd et al (2015), dan Manoel et al (2017) menjelaskan pengaruh signifikan profitability terhadap cash holdings.…”

“…dan Mengyun et al (2021) menemukan bahwa board size memberikan hubungan signifikan dan positif terhadap cash holdings. Hasil penelitian olehMagerakis et al (2015),Alzoubi (2019),Mengyun et al (2021), danKhan et al (2019) adalah bahwa firm size memiliki keterkaitan yang signifikan dan negatif terhadap cash holdings. Sedangkan, kaitan antara profitability dan cash holdings dinyatakan memiliki hubungan signifikan dan positif oleh beberapa penelitian seperti yang dilakukan olehMohd et al (2015),Manoel et al (2017).,Arfan et al (2017), danAlzoubi (2019).…”

Exploring the influence of women’s leadership and corporate governance on operational liquidity: The glass cliff effect

“…Effective management through good corporate governance of a firm's operating liquidity is crucial as it involves maintaining a balance between current assets and liabilities. This balance ensures the firm can cover any potential cash shortages during financial difficulties in Covid-19 and seize lucrative investment openings [8][9][10]. However, excessive liquidity can negatively impact the firm's profitability [11], as holding more liquid assets means that a more significant portion of the firm's support is not generating returns [12], resulting in lower income and tax disadvantages that can lower overall profitability [13].…”

The Effect of Cash Holdings on Financial Performance: Evidence from Middle Eastern and North African Countries

“…Hence, this cash may have a positive role in firm sustainability. Firms usually keep a specific or optimal level of cash to avoid any liquidity problems in the future and avail any investment opportunities (Khan et al 2019). However, the main motivation for cash holdings is precautionary.…”