Impact of Corporate Governance on Cash Holdings: Evidence from Non-Financial Sectors of Pakistan

Abstract

This paper investigates the impact of corporate governance on cash holding of non-financial Pakistani firms listed on the Karachi stock exchange. A sample of 110 non-financial firms is used from 2017 through 2021. This paper tested panel data and report that the fixed effect model is the best result-yielding method. The results show that board independence, the board size, firm size, and cash flow do not show any relationship with cash holding, whereas leverage, market-to-book value, profitability, and dividend have an insignificant relationship with cash holdings. Whereas Net-working-capital, insider ownership, and institutional ownership are positively related to cash holdings. Firms with CEO duality have no effect on cash reserves in firms. The results from this study show that Pakistani firms tend to hold a moderate amount of cash level. The result supports the trade-off theory and some aspects of agency cost theory.

Keywords: Karachi stock exchange, panel data, fixed effect model, cash holding, corporate governance, CEO duality

DOI: 10.7176/RJFA/13-20-03

Publication date:October 31^st 2022