Impact of Corporate Governance Practices on Firm's Cash Holdings in an Emerging Market: A Panel Data Analysis

Abstract

The aim of the study was to examine the impact of corporate governance practices on firm's cash holdings of listed manufacturing companies in Sri Lanka, using panel data extracted from the financial statements of the companies listed on Colombo Stock Exchange. Corporate governance practices of Sri Lankan listed manufacturing companies were measured by board independence, board size, CEO duality, audit committee meetings and audit committee members, cash holdings were measured by percentage of cash and cash equivalents on total assets and also leverage and firm size were considered as control variables. Data were collected from 26 listed manufacturing companies over a five years period of 2011-2015. Pooled Ordinary Least Square, Fixed Effect and Random Effect models were performed using STATA to explore the best model for the impact of corporate governance practices on firm's cash holdings. Results of the study revealed that fixed effect model was the best model with the evidence of Hausman specification test. According to the fixed effect model, CEO-duality and leverage had significant negative impact on cash holdings while audit committee meetings and firm size had positive impact on cash holdings of the listed manufacturing companies in Sri Lanka. Board independence, board size and audit committee members did not show any significant impact on cash holdings. Findings of the study may be useful to practitioners to identify the effects of corporate governance practices on firm's cash holdings.

The Impact of Foreign Portfolio Investment and Corporate Governance on Corporate Cash Holdings: Evidence from the Leading Manufacturing Sectors in Pakistan

“…Kengatharan [26] by taking 26 manufacturing companies listed on the Colombo Stock Exchange from the period of 2011-2015. The findings showed that CEO-duality and leverage has significant negative impact whereas firm size and audit committee meetings firm size had positive impact while Board independence, board size and audit committee members has an insignificant impact on cash holdings…”

Do political connections shape the nexus between board attributes and corporate cash holdings?

“…In the literal sense of word, the overwhelming majority of prior studies are devoted to examine the direct nexus between CG and firm's cash holdings. Thereby, it is worth to study what was predominantly neglected by the previous researchers (see Cruz, 2015; Hassanein and Kokel, 2019; Kengatharan, 2017; Roy, 2018). Second , in the context of the contradictory and mixed findings in prior research, it is logically and rationally to revisit the above-mentioned relationship by including a moderator variable.…”

The Effect Of Corporate Governance On Cash Holdings

“…This result shows that 88.100 per cent of cash holdings can be explained by all independent and control variables; 11.900 per cent was explained by other variables not tested in this study. 2017Ayed, 2022Gul et al, 2020;Kengatharan, 2017) who found that the proportion of independent board of directors was not a factor that had a significant influence on determining the number of cash holdings.…”

“…An audit committee that actively holds meetings could positively impact the excess cash or cash reserves (Choi et al, 2020). Conversely, (Kengatharan, 2017) in his research found that meetings held by the audit committee did not affect the determination of the amount of cash holdings.…”