Shariah Compliance and Corporate Cash Holdings

Bugshan, Abdullah; Alnori, Faisal; Bakry, Walid

doi:10.2139/ssrn.3581440

Cited by 7 publications

(28 citation statements)

References 64 publications

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“…Furthermore, the empirical result also matches the prediction from Farooq & Tbeur (2013) and Pepis & de Jong (2019) in that the Islamic index provides good credibility and image. On the other hand, this result differs from a previous study of the shariah index and cash holdings in the MENA region (Bugshan et al, 2020). Theoretical Economics Letters This table show the panel regression estimation for cash holding.…”

Section: Resultscontrasting

confidence: 87%

“…The findings could be an essential motivation for the company for listed in shariah-compliant index. This research contributes to the line of research by complements prior cash holding research in shariah-compliant firms (Bugshan et al, 2020) by investigating the issue in a more flexible shariah-compliant restriction environment. The difference between our research and Bugshan et al (2020) is the research focus.…”

Section: Introductionmentioning

confidence: 96%

“…Nevertheless, empirical evidence in regards to cash holdings is still limited. Bugshan, Alnori and Bakry (2020) study the Middle East and North Africa (MENA) region, documenting a higher cash holding level for sharia-compliant firm. They argue that shariah-compliant firms mitigate the restriction they carry by holding more cash.…”

Section: Introductionmentioning

confidence: 99%

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Cash Holdings in Shariah-Compliant Firms

Hakim¹,

Liu²,

Kunaifi³

2021

TEL

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The restrictions of a shariah-compliant index could have consequences for corporate finance. This research investigates the difference in cash holding policies between shariah-compliant and conventional firms in the Indonesia capital market. Our empirical results suggest that a shariah-compliant firm holds significantly less cash compared to a conventional firm. The empirical finding still maintains after excluding top performers in the market and after controlling for other proxies of cash holdings and shariah-compliant firms. Our results suggest that the reputation benefit from a shariah-compliant index could outpace the cost of restrictions under a lenient shariah regulation environment.

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Section: Resultscontrasting

confidence: 87%

Section: Introductionmentioning

confidence: 96%

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Cash Holdings in Shariah-Compliant Firms

Hakim¹,

Liu²,

Kunaifi³

2021

TEL

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“…More specifically, these firms can access fewer financing channels in comparison with non-Shariah-compliant (NSC) firms, and hence are more constrained in their financing choices. According to Bugshan et al (2021), the limited access to external financing faced by SC firms makes the transaction cost motive for holding cash more valuable compared with the situation for NSC firms, which do not have the same restrictions on their external financing choices. Therefore, SC firms accumulate cash and rely more on internally generated funds to avoid the high cost of financial constraints due to their limited external financing options.…”

Section: Introductionmentioning

confidence: 99%

Does Shariah compliance affect corporate cash holdings and cash adjustment dynamics? Evidence from Malaysia

Guizani

Abdalkrim

2021

PAR

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Purpose The purpose of this paper is to investigate the effect of Shariah compliance status on corporate cash holding decision. Design/methodology/approach This study applies ordinary least square and generalized method of moments regression models for a sample of 178 Malaysian listed firms over the period 2008–2017. Findings The results show that Shariah compliance has positive impact on the level of cash reserves of firms. It is also found that Shariah-compliant (SC) firms quickly adjust their level of cash holdings toward a target level than non–Shariah-compliant (NSC) firms. These results can be explained by the restrictions imposed by Shariah rules on firms to sustain their compliance status. Further, the results reveal that SC firms are likely to hold more cash out of their cash flows. This is the expected result, as the firms operating within the ambit of Shariah rulings and regulations face external financing constraints. Practical implications This study has important implications for managers, policymakers and regulators. For managers, the study is an important reference to understand and design cash management policies by considering restrictions imposed by Shariah regulations. In particular, managers should pay more attention to periods of credit crunch and weak economic conditions in which SC firms may be exposed to greater bankruptcy risks. For policymakers and regulators, this study may be useful in assessing the effect of the restrictions imposed by Shariah law on firm’s cash holding decision. Therefore, in an effort to increase the supply of external financing available to SC firms, policymakers should encourage the issuing of Islamic financial products. Originality/value This paper focuses on SC firms where financial constraints are bound to be more stringent than for NSC firms. It explores the implications of relevant Islamic principles on corporate cash holdings.

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“…However, Alnori and Alqahtani (2019) documented lower adjustment speeds among Shariah-compliant firms in comparison to their non-Shariah-compliant firms. Bugshan et al. (2021a) showed that Shariah-compliant firms hold more cash and adjust faster to their cash target compared to non-Shariah-compliant.…”

Section: Literature Review and Theoretical Backgroundmentioning

confidence: 99%

The determinants of corporate cash holdings: evidence from Shariah-compliant and non-Shariah-compliant corporations

Alnori

Bugshan

Bakry

2021

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PurposeThe purpose of this study is to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms, for non-financial corporations in the Gulf Cooperation Council (GCC).Design/methodology/approachThe data include all non-financial firms listed in six GCC markets over a period 2005–2019. The IdealRatings database is used to identify Shariah-compliant firms in the GCC. To examine the determinants of cash holdings, a static model is used. To confirm the applicability of the method applied, the Breusch–Pagan Lagrange Multiplier (LM) and Hausman (1978) are used to choose the most efficient and consistent static panel regression.FindingsThe results show that, for Shariah-compliant firms, the relevant determinants of cash holdings are leverage, profitability, capital expenditure, net working capital and operating cash flow. For non-Shariah-compliant firms, the only relevant determinants of cash holdings are leverage, net working capital and operating cash flow. The findings suggest that the cash holding decisions of Shariah-compliant firms can be best explained using the pecking order theory. This reveals that Shariah-compliant firms use liquid assets as their first financing option, due to the Shariah regulations.Research limitations/implicationsFuture studies may investigate the optimal levels of cash holdings and compare the adjustment speeds toward target cash holdings of both the Shariah-compliant firms and their conventional counterparts.Originality/valueThis study is the first to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms.

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Shariah Compliance and Corporate Cash Holdings

Cited by 7 publications

References 64 publications

Cash Holdings in Shariah-Compliant Firms

Cash Holdings in Shariah-Compliant Firms

Does Shariah compliance affect corporate cash holdings and cash adjustment dynamics? Evidence from Malaysia

The determinants of corporate cash holdings: evidence from Shariah-compliant and non-Shariah-compliant corporations

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