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

Alnori, F., Bugshan, A. and Bakry, W. (2022), "The determinants of corporate cash holdings: evidence from Shariah-compliant and non-Shariah-compliant corporations", Managerial Finance, Vol. 48 No. 3, pp. 429-450. https://doi.org/10.1108/MF-02-2021-0085

34 Pages Posted: 30 Nov 2020 Last revised: 15 Feb 2022

See all articles by Faisal Alnori

Faisal Alnori

affiliation not provided to SSRN

Abdullah Salem Bugshan

Western Sydney University

Walid Bakry

Western Sydney University

Date Written: April 1, 2020

Abstract

Purpose: The purpose of this study is to explore 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).

Methodology: The data includes all non-financial firms listed in six GCC markets over the period 2005 to 2016. The Ideal Ratings database is used to identify shariah-compliant firms in the GCC. To examine the determinants of cash holdings, static model is used. To confirm the applicability of the method applied, the Breusch-Pagan Lagrange Multiplier (LM) and Hausman (1978) are employed to choose the most efficient and consistent static panel regression.

Findings: The Results show that, for shariah-complaint firms, the relevant determinants of cash holdings are leverage, profitability, capital expenditure, and net working capital. For non-shariah-compliant firms, the only relevant determinants of cash holdings are leverage and net working capital. The findings suggest that cash holding decisions of shariah-complaint firms can be best explained using the pecking order theory. This reveals that shariah-compliant firms use liquid assets as their first financing option since, due to the shariah regulations.

Research limitations/implications: Future 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/value: This study is the first to investigate the difference between the determinants of cash holdings of shariah-compliant and non-shariah-compliant firms.

Keywords: Cash Holding; Financial Determinants; Shariah Compliance; Islamic Finance

JEL Classification: G30, G32, G39

Suggested Citation

Alnori, Faisal and Bugshan, Abdullah Salem and Bakry, Walid, The determinants of corporate cash holdings: evidence from Shariah-compliant and non-Shariah-compliant corporations (April 1, 2020). Alnori, F., Bugshan, A. and Bakry, W. (2022), "The determinants of corporate cash holdings: evidence from Shariah-compliant and non-Shariah-compliant corporations", Managerial Finance, Vol. 48 No. 3, pp. 429-450. https://doi.org/10.1108/MF-02-2021-0085 , Available at SSRN: https://ssrn.com/abstract=3729096 or http://dx.doi.org/10.2139/ssrn.3729096

Faisal Alnori

affiliation not provided to SSRN

Abdullah Salem Bugshan

Western Sydney University ( email )

169 Macquarie st
Sydney, NSW 2150
Australia

Walid Bakry (Contact Author)

Western Sydney University ( email )

Sydney
1 Parramatta Square, 169 Macquarie Street, Parrama
Sydney, 2751
Australia
2 9685 9372 (Phone)

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