Effects of Corporate Governance on Cash Holdings of Shariah-Compliant Firms
DOI:
https://doi.org/10.53840/jmm.v15i2.241Keywords:
Shariah-compliant, Board Characteristics, Cash Holdings, Corporate Governance, Shariah-CompliantAbstract
This study aims to enhance the understanding of the impact of corporate governance on cash holdings. Although previous studies have documented the significant impact of corporate governance on cash holdings, the findings focusing on Shariah-compliant firms (SCFs) are still limited. Therefore, this study examines the effects of corporate governance, represented by board characteristics, on cash holdings of SCFs listed in Bursa Malaysia using a static panel data regression. This study tests the robustness of the model by estimating standard errors clustered by firms while addressing both firm fixed and time effects. The results show that board size has a significant positive effect, while board independence and CEO duality demonstrate insignificant negative effects. These findings suggest that a smaller board is an effective corporate governance mechanism and that SCFs have superior corporate governance policies and practices. Hence, their managers' actions and decisions regarding cash holdings are unaffected by their independent board and their CEO's dual role. This study contributes to enriching the literature on corporate governance and corporate decisions for SCFs, and provides insights to regulators for the encouragement of good governance practices. Potential avenues for further research could involve investigating and contrasting the findings between SCFs and Non-Shariah-Compliant Firms (NSCFs) to highlight the similarities and differences.
Downloads
References
Abuhijleh, S. T. ., & Zaid, M. A. A. (2023). Do political connections shape the nexus between board attributes and corporate cash holdings? EuroMed Journal of Business, 18(1), 85–110. https://doi.org/10.1108/EMJB-09-2021-0136
Ahmed, R., Qi, W., Ullah, S., & Kimani, D. (2018). Determinants of corporate cash holdings: An empirical study of Chinese listed firms. Corporate Ownership and Control, 15(3), 57–65. https://doi.org/10.22495/cocv15i3art5
Ajanthan, A., & Kumara, K. U. (2017). Corporate governance and cash holdings: Empirical evidence from an emerging country, Sri Lanka. International Journal of Accounting and Financial Reporting, 7(2), 112–128. https://doi.org/10.5296/ijafr.v7i2.12137
Akhtar, T., Tareq, M. A., & Rashid, K. (2021). Chief Executive Officers’ monitoring, board effectiveness, managerial ownership, and cash holdings: Evidence from ASEAN. Review of Managerial Science, 15(8), 2193–2238. https://doi.org/10.1007/s11846-020-00421-0
Al-Hadi, A., Eulaiwi, B., Al-Yahyaee, K. H., Duong, L., & Taylor, G. (2020). Investment committees and corporate cash holdings. North American Journal of Economics and Finance, 54, 1–22. https://doi.org/10.1016/j.najef.2020.101260
Al-Najjar, B. (2015). The effect of governance mechanisms on small and medium-sized enterprise cash holdings: Evidence from the United Kingdom. Journal of Small Business Management, 53(2), 303–320. https://doi.org/10.1111/jsbm.12062
Al-Najjar, B., & Clark, E. (2017). Corporate governance and cash holdings in MENA: Evidence from internal and external governance practices. Research in International Business and Finance, 39, 1–12. https://doi.org/10.1016/j.ribaf.2016.07.030
Al Amosh, H., & Khatib, S. F. A. (2022). Ownership structure and environmental, social and governance performance disclosure: The moderating role of the board independence. Journal of Business and Socio-Economic Development, 2(1), 49–66. https://doi.org/10.1108/JBSED-07-2021-0094
Alnori, F., & Alqahtani, F. (2019). Capital structure and speed of adjustment in non-financial firms: Does Sharia compliance matter? Evidence from Saudi Arabia. Emerging Markets Review, 39(August 2018), 50–67. https://doi.org/10.1016/j.ememar.2019.03.008
Alnori, F., & Bugshan, A. (2022). Cash holdings and firm performance: Empirical analysis from Shariah-compliant and conventional corporations. International Journal of Islamic and Middle Eastern Finance and Management, 16(3), 498–515. https://doi.org/10.1108/IMEFM-01-2022-0005
Alnori, F., Bugshan, A., & Bakry, W. (2022). The determinants of corporate cash holdings: Evidence from Shariah-compliant and non-Shariah-compliant corporations. Managerial Finance, 48(3), 429–450. https://doi.org/10.1108/MF-02-2021-0085
Alqahtani, J., Duong, L., Taylor, G., & Eulaiwi, B. (2022). Outside directors, firm life cycle, corporate financial decisions and firm performance. Emerging Markets Review, 50(March), 1–20.
Arora, R. K. (2019). Corporate cash holdings: An empirical investigation of Indian companies. Global Business Review, 20(4), 1–19. https://doi.org/10.1177/0972150919844911
Ashari Bakri, M., & Chia Yong, C. (2023). Determinants of dividend policies in Shariah compliant and non-Shariah compliant firms: A panel quantile approach. Capital Markets Review, 31(1), 47–58. https://www.mfa.com.my/cmr/v31_i1_a3/%0Ahttp://creativecommons.org/licenses/by/4.0/
Ashhari, Z. M., & Faizal, D. R. (2018). Determinants and performance of cash holding: Evidence from small business in Malaysia. International Journal of Economics, Management and Accounting, 26(2), 457–473.
Aslam, E., Kalim, R., & Fizza, S. (2019). Do cash holding and corporate governance structure matter for the performance of Firms? Evidence from KMI 30- and KSE 100-indexed firms in Pakistan. Global Business Review, 20(2), 1–18. https://doi.org/10.1177/0972150918825202
Bagh, T., Khan, M. A., Meyer, N., Sadiq, R., & Kot, S. (2021). Determinants of corporate cash holdings among Asia’s emerging and frontier markets: Empirical evidence from non-financial sector. Journal of Asian Finance, Economics and Business, 8(6), 661–670. https://doi.org/10.13106/jafeb.2021.vol8.no6.0661
Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do U.S. firms hold so much than they used to? Journal of Finance, 64(5), 1985–2021. https://doi.org/10.1111/j.1540-6261.2009.01492.x
Boubaker, S., Derouiche, I., & Nguyen, D. K. (2015). Does the board of directors affect cash holdings? A study of French listed firms. Journal of Management and Governance, 19(2), 341–370. https://doi.org/10.1007/s10997-013-9261-x
Breusch T. S, & Pagan A.R. (1980). The lagrange multiplier test and its applications to model specification in econometrics. Review of Economic Studies, 47, 239–253.
Buallay, A., Hamdan, R., Barone, E., & Hamdan, A. (2022). Increasing female participation on boards: Effects on sustainability reporting. International Journal of Finance and Economics, 27(1), 111–124. https://doi.org/10.1002/ijfe.2141
Bugshan, A., Alnori, F., & Bakry, W. (2021). Shariah compliance and corporate cash holdings. Research in International Business and Finance, 56, 1–16. https://doi.org/10.1016/j.ribaf.2021.101383
Cambrea, D. R., Calabrò, A., La Rocca, M., & Paolone, F. (2022). The impact of boards of directors’ characteristics on cash holdings in uncertain times. Journal of Management and Governance, 26(1), 189–221. https://doi.org/10.1007/s10997-020-09557-3
Chen, N., & Yang, T. C. (2017). Democracy, rule of law, and corporate governance—a liquidity perspective. Economics of Governance, 18(1), 35–70. https://doi.org/10.1007/s10101-016-0182-4
Chen, N., & Yu, M. T. (2023). Sharia compliance, national governance, and value of cash in Organization of Islamic Cooperation countries. Humanities & Social Sciences Communications, 10(24), 1–10. https://doi.org/10.1057/s41599-023-01521-4
Chen, Y. R., Ho, K. Y., & Yeh, C. W. (2020). CEO overconfidence and corporate cash holdings. Journal of Corporate Finance, 62, 1–26. https://doi.org/10.1016/j.jcorpfin.2020.101577
Chireka, T., & Fakoya, M. B. (2017). The determinants of corporate cash holdings levels: Evidence from selected South African retail firms. Investment Management and Financial Innovations, 14(2), 79–93.
Chouaibi, S., Chouaibi, Y., & Zouari, G. (2022). Board characteristics and integrated reporting quality: Evidence from ESG European companies. EuroMed Journal of Business, 17(4), 425–447. https://doi.org/10.1108/EMJB-11-2020-0121
Cindy, M., Leon, F. M., & Purba, Y. E. (2023). Determinants of cash holding of Shariah and non-Shariah-compliant firms at Indonesia stock exchange. The International Journal of Business & Management, 11(1), 19–31. https://doi.org/10.24940/theijbm/2023/v11/i1/bm2301-009
Cook, R. D. (1977). Detection of influential observation in linear regression. Technometrics, 19(1), 15–18.
da Cruz, A. F., Kimura, H., & Sobreiro, V. A. (2019). What do we know about corporate cash holdings? A systematic analysis. Journal of Corporate Accounting & Finance, 30(1), 77–144. https://doi.org/10.1002/jcaf.22368
Diaw, A. (2021). Corporate cash holdings in emerging markets. Borsa Istanbul Review, 21(2), 139–148. https://doi.org/10.1016/j.bir.2020.09.005
Drobetz, W., & Gruninger, M. C. (2007). Corporate cash holdings: Evidence from Switzerland. Financial Markets and Portfolio Management, 21(3), 293–324. https://doi.org/10.1007/s11408-007-0052-8
Duru, A., Iyengar, R. J., & Zampelli, E. M. (2016). The dynamic relationship between CEO duality and firm performance: The moderating role of board independence. Journal of Business Research, 69(10), 4269–4277. https://doi.org/10.1016/j.jbusres.2016.04.001
Dyck, A., & Zingales, L. (2004). Private benefits of control: An international comparison. Journal of Finance, 59(2), 537–600. https://doi.org/10.1111/j.1540-6261.2004.00642.x
Elyasiani, E., & Movaghari, H. (2022). Determinants of corporate cash holdings: An application of a robust variable selection technique. International Review of Economics and Finance, 80, 967–993. https://doi.org/10.1016/j.iref.2022.03.003
Ferreira, M. A., & Vilela, A. S. (2004). Why do firms hold cash? Evidence from EMU countries. European Financial Management, 10(2), 295–319. https://doi.org/10.1111/j.1354-7798.2004.00251.x
Ferreira, M. P., & Vicente, E. F. R. (2020). Effect of the structure of the board of directors on cash holdings of publicly traded companies. Contextus – Revista Contemporânea de Economia e Gestão, 18, 275–289.
Germain, L., Galy, N., & Lee, W. (2014). Corporate governance reform in Malaysia: Board size, independence and monitoring. Journal of Economics and Business, 75, 126–162. https://doi.org/10.1016/j.jeconbus.2014.06.003
Guizani, Moncef, & Abdalkrim, G. (2021). Does Shariah compliance affect corporate cash holdings and cash adjustment dynamics? Evidence from Malaysia. Pacific Accounting Review, 33(4), 459–473. https://doi.org/10.1108/PAR-07-2020-0100
Guizani, Muncef. (2017). The financial determinants of corporate cash holdings in an oil rich country: Evidence from Kingdom of Saudi Arabia. Borsa Istanbul Review, 17(3), 133–143. https://doi.org/10.1016/j.bir.2017.05.003
Hamdouni, A. (2025). The nexus between corporate governance improvements, corporate investment and value creation: Evidence from Shariah-compliant companies. International Journal of Innovative Research and Scientific Studies, 8(2), 321–328. https://doi.org/10.53894/ijirss.v8i2.5159
Hausman, J. A. (1978). Specification test in econometrics. Econometrica, 46(6), 1251–1271.
Hoechle, D. (2014). Robust standard errors for panel regressions with cross-sectional dependence. Stata Journal, 281–312. https://doi.org/10.1177/1536867x0700700301
Hsiao, C. (2014). Analysis of Panel Data (Third Ed). Cambridge University Press.
Im, H. J., Park, H., & Zhao, G. (2017). Uncertainty and the value of cash holdings. Economics Letters, 155, 43–48. https://doi.org/10.1016/j.econlet.2017.03.005
Iskandar-datta, M. E., & Jia, Y. (2014). Investor protection and corporate cash holdings around the world: New evidence. Review of Quantitative Finance and Accounting, 43, 245–273. https://doi.org/10.1007/s11156-013-0371-y
Jebran, K., Chen, S., & Tauni, M. Z. (2019). Principal-principal conflicts and corporate cash holdings: Evidence from China. Research in International Business and Finance, 49(February), 55–70. https://doi.org/10.1016/j.ribaf.2019.02.010
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323–329.
Kadioglu, E., & Yilmaz, E. A. (2017). Is the free cash flow hypothesis valid in Turkey? Borsa Istanbul Review, 17(2), 111–116.
Karim, S., Abdul Manab, N., & Ismail, R. (2023). Assessing the governance mechanisms, corporate social responsibility and performance: The moderating effect of board independence. Global Business Review, 24(3), 550–562. https://doi.org/10.1177/0972150920917773
Katper, N. K., Madun, A., & Syed, K. B. S. (2015). Does Shariah compliance lead to managerial trustworthiness? Evidence from empirical analysis of capital structure of Shariah and non-Shariah firms in Pakistan. Journal of Applied Economic Sciences, 10(7), 1028–1045.
Khan, S., Peng, Z., Ahmad, S., Mahmood, S., & Ahmad, I. (2019). Effect of firm structure on corporate cash holding (Evidence from non-financial companies). Journal of Financial Risk Management, 8(1), 1–14. https://doi.org/10.4236/jfrm.2019.81001
Khattak, M. A., Ali, M., & Burki, A. K. (2020). Sustainability-disclosures and financial performance: Shariah-compliant Vs non-Shariah-compliant Indonesian Firms. Journal of Islamic Monetary Economics and Finance, 6(4), 789–810. https://doi.org/10.21098/jimf.v6i4.1087
Kusnadi, Y. (2019). Political connections and the value of cash holdings. Finance Research Letters, 30, 96–102. https://doi.org/10.1016/j.frl.2019.03.035
Kwan, J.H., & Lau, W.Y. (2020). Corporate governance and cash holdings in hospitality firms: Do board characteristics matter? Asian Economic and Financial Review, 10(7), 816–832. https://doi.org/10.18488/journal.aefr.2020.107.816.832
Law, S. H. (2018). Applied panel data analysis: Short panel (First Ed). Universiti Putra Malaysia Press.
Lee, K.W., & Lee, C.F. (2009). Cash Holdings, corporate governance structure and firm valuation. Review of Pacific Basin Financial Markets and Policies, 12(3), 475–508.
Li, X., & Luo, D. (2020). Increase in cash holdings of U.S. firms: The role of healthcare and technology industries. Journal of Business Research, 118(July), 286–298. https://doi.org/10.1016/j.jbusres.2020.06.034
Lipton, M., & Lorsch, J. W. (1992). A modest proposal for improved corporate governance. The Business Lawyer, 48(1), 59–77. https://doi.org/10.1525/sp.2007.54.1.23
Magerakis, E. (2022). The importance of managerial discretion on managerial ability–firm cash holding nexus. Management Decision, 60(12), 3275–3303. https://doi.org/10.1108/MD-07-2021-0991
Magerakis, E., Gkillas, K., Tsagkanos, A., & Siriopoulos, C. (2020). Firm size does matter: New evidence on the determinants of cash holdings. Journal of Risk and Financial Management, 13(8), 163. https://doi.org/10.3390/jrfm13080163
Maruhun, E. N. S., Abdullah, W. R. W., Atan, R., & Syed Yusuf, S. N. (2018). The effects of corporate governance on enterprise risk management: Evidence from Malaysian Shariah-compliant firms. International Journal of Academic Research in Business and Social Sciences, 8(1), 865–877. https://doi.org/10.6007/ijarbss/v8-i1/3893
MengYun, W., Um-e-Habiba, Husnain, M., Sarwar, B., & Ali, W. (2021). Board financial expertise and corporate cash holdings: Moderating role of multiple large shareholders in emerging family firms. Complexity, 1, 1–22.
Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3–46. https://doi.org/10.1016/S0304-405X(99)00003-3
Orlova, S. V., & Sun, L. (2018). Institutional determinants of cash holdings speed of adjustment. Global Finance Journal, 37(November 2017), 123–137. https://doi.org/10.1016/j.gfj.2018.05.002
Ozkan, A., & Ozkan, N. (2004). Corporate cash holdings: An empirical investigation of UK companies. Journal of Banking and Finance, 28, 2103–2134. https://doi.org/10.1016/j.jbankfin.2003.08.003
Petersen, M. A. (2009). Estimating standard errors in finance panel data sets: Comparing approaches. Review of Financial Studies, 22(1), 435–480. https://doi.org/10.1093/rfs/hhn053
Rafinda, A., Hadzhiev, A., Tähkänen, S., & Helvert, L. van. (2018). Determinants of cash holdings in developed and developing countries. Jurnal Dinamika Manajemen, 9(1), 1–11. https://doi.org/10.15294/jdm.v9i1.14647
Rahayu Izwani, B., & Pok, W. C. (2011). Cash holding, leverage, ownership concentration and board independence: Evidence from Malaysia. Malaysia Accounting Review, 10(1), 63–88.
Rama Iyer, S., Sankaran, H., & Walsh, S. T. (2020). Influence of director expertise on capital structure and cash holdings in high-tech firms. Technological Forecasting and Social Change, 158(June), 1–15. https://doi.org/10.1016/j.techfore.2020.120060
Ramli, N. E., & Haron, R. (2017). Debt determinants of Shari’ah approved firms: Empirical evidence from Malaysia. Journal of Islamic Finance, 6(Special Issue), 188–204. https://doi.org/10.12816/0047349
Roy, A. (2018). Corporate governance and cash holdings in Indian firms. Contemporary Studies in Economic and Financial Analysis, 99, 93–119. https://doi.org/10.1007/978-981-13-1696-8
Saeed, A., & Sameer, M. (2017). Impact of board gender diversity on dividend payments: Evidence from some emerging economies. International Business Review, 26(6), 1100–1113. https://doi.org/10.1016/j.ibusrev.2017.04.005
Satt, H., Bendriouch, F. Z., & Nechbaoui, S. (2020). The impact of Shariah finance compliance level on the cost of debt. Journal of Islamic Accounting and Business Research, 11(6), 1211–1226. https://doi.org/10.1108/JIABR-04-2018-0056
Saxena, V., & Sahoo, S. (2023). What drives corporate cash holdings in MSMEs?: Evidence from India. Managerial Finance, 49(2), 291–314. https://doi.org/10.1108/MF-04-2022-0184
Securities Commission Malaysia. (2012). Malaysian code on corporate governance.
Securities Commission Malaysia. (2021). Malaysian code on corporate governance.
Securities Commission Malaysia. (2024). List of Shariah-Compliant Securities by the Shariah Advisory Council of the Securities Commission Malaysia (Issue May).
Shabbir, M., Haider Hashmi, S., & Mujtaba Chaudhary, G. (2016). Determinants of corporate cash holdings in Pakistan. International Journal of Organizational Leadership, 5(1), 50–62. https://doi.org/10.33844/ijol.2016.60263
Shahrier, N. A., Ho, J. S. Y., & Gaur, S. S. (2020). Ownership concentration, board characteristics and firm performance among Shariah-compliant companies. Journal of Management and Governance, 24(2), 365–388. https://doi.org/10.1007/s10997-018-
-6
Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. The Journal of Finance, 52(2), 737–783. https://doi.org/10.2307/2329497
Sulong, Z., & Mat Nor, F. (2008). Dividends, ownership structure and board governance on firm value: Empirical evidence from Malaysian listed firms. Malaysian Accounting Review, 7(2), 55–94. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=38213256&site=bsi-live
Talbi, D., & Menchaoui, I. (2023). Impact of board attributes and managerial ownership on cash holdings: Empirical evidence using GMM and quantile regressions. Corporate Governance, 23(4), 723–741. https://doi.org/10.1108/CG-04-2021-0145
Thanatawee, Y. (2019). Alignment or entrenchment? Evidence from cash holdings in Thailand. Afro-Asian Journal of Finance and Accounting, 9(3), 291–308. https://doi.org/10.1504/AAJFA.2019.100978
Ullah, S., Haroon, M., Hussain, S., & Rehman, A. U. (2023). Islamic labelling and corporate governance: A perspective of Shariah compliance firms. Journal of Islamic Accounting and Business Research, 14(6), 849–867. https://doi.org/10.1108/JIABR-03-2021-0108
Wasiuzzaman, S. (2014). Analysis of corporate cash holdings of firms in Malaysia. Journal of Asia Business Studies, 8(2), 118–135. https://doi.org/10.1108/JABS-10-2012-0048
Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40, 185–211.
Zabri, S. M., Ahmad, K., & Wah, K. K. (2016). Corporate governance practices and firm performance: Evidence from top 100 public listed companies in Malaysia. Procedia Economics and Finance, 35(October 2015), 287–296. https://doi.org/10.1016/S2212-5671(16)00036-8
Zainudin, N., Abdul Rahim, N., Selamat, A. I., & Abdul Rahim, R. (2024). Determinants of cash holdings: Evidence from Shariah-compliant firms in Malaysia. International Journal of Islamic Economics and Finance Research, 7(2), 1–18.
Zhou, M., Li, K., & Chen, Z. (2021). Corporate governance quality and financial leverage: Evidence from China. International Review of Financial Analysis, 73(December 2020), 101652. https://doi.org/10.1016/j.irfa.2020.101652
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Journal of Management and Muamalah
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
