Cash holdings and corporate governance: an empirical study on Malaysian public listed companies

Abstract

The purpose of this paper is to shed light on the relationship between corporate governance characteristics and cash holding. Cash holding has drawn researchers' attention recently due to the fact that many companies all around the world have doubled their cash reserves. However, increasing cash holdings can bring about agency issues and that is why it is critical to have a strong corporate governance in order to compensate for the agency costs. This will provide managers with more cash reserves which lead to more flexibility to take advantage of the investment opportunities. The sample of this study is taken from Malaysian publicly listed companies for a ten-year period starting from 2003 to 2012. The outcome of this study suggests that corporate governance can significantly affect cash holdings and eventually corporate value. Therefore, companies with stronger corporate governance tend to keep higher cash holdings ratio.