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Analysis of corporate cash holdings of firms in Malaysia

Analysis of corporate cash holdings of firms in Malaysia Purpose – The purpose of this paper is to understand the motives behind the levels of cash holdings and the theory that may be able to explain why these firms hold so much cash. Design/methodology/approach – Annual financial data and stock prices of 192 firms from six different sectors on the Bursa Malaysia are collected for the period 2000‐2007. Analysis using the non‐parametric Kruskal–Wallis test is carried out to analyze industrial and time differences in cash holdings. The ordinary least square (OLS) regression technique is used to understand the relationships between various attributes with the level of cash holdings. Due to issues of endogeneity, the generalized method of moments method is also applied. Findings – Significant differences are found to exist in the level of cash holdings between firms and across time. It is found that firms adjust to a target level of cash holdings, although this is done relatively slowly. Also, significance of firm characteristics and their relationships with cash holdings indicate that other than the pecking order theory, the trade‐off theory and the agency theory can help explain the level of cash holdings of firms in Malaysia. Originality/value – Most studies on cash holdings have been carried out in developed countries. Malaysia is an advanced emerging market with significant state control and firm structure being largely family‐oriented. Hence, a study on a different market with different types of firm structures will contribute significantly to the existing literature on corporate cash holdings. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Asia Business Studies Emerald Publishing

Analysis of corporate cash holdings of firms in Malaysia

Journal of Asia Business Studies , Volume 8 (2): 18 – Apr 29, 2014

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Publisher
Emerald Publishing
Copyright
Copyright © 2014 Emerald Group Publishing Limited. All rights reserved.
ISSN
1558-7894
DOI
10.1108/JABS-10-2012-0048
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to understand the motives behind the levels of cash holdings and the theory that may be able to explain why these firms hold so much cash. Design/methodology/approach – Annual financial data and stock prices of 192 firms from six different sectors on the Bursa Malaysia are collected for the period 2000‐2007. Analysis using the non‐parametric Kruskal–Wallis test is carried out to analyze industrial and time differences in cash holdings. The ordinary least square (OLS) regression technique is used to understand the relationships between various attributes with the level of cash holdings. Due to issues of endogeneity, the generalized method of moments method is also applied. Findings – Significant differences are found to exist in the level of cash holdings between firms and across time. It is found that firms adjust to a target level of cash holdings, although this is done relatively slowly. Also, significance of firm characteristics and their relationships with cash holdings indicate that other than the pecking order theory, the trade‐off theory and the agency theory can help explain the level of cash holdings of firms in Malaysia. Originality/value – Most studies on cash holdings have been carried out in developed countries. Malaysia is an advanced emerging market with significant state control and firm structure being largely family‐oriented. Hence, a study on a different market with different types of firm structures will contribute significantly to the existing literature on corporate cash holdings.

Journal

Journal of Asia Business StudiesEmerald Publishing

Published: Apr 29, 2014

Keywords: Agency theory; Cash holdings; Trade‐off theory; Pecking order theory; Speed of adjustment

References