Impact of Cash Holdings on Firm Performance: The Moderating Role of Board Independence

Iraj Khalid

doi:10.31181/msa41202751

Authors

Iraj Khalid Department of Business Administration, Allama Iqbal Open University, Sector H-8, Islamabad, Pakistan Author https://orcid.org/0009-0008-1409-8260

DOI:

https://doi.org/10.31181/msa41202751

Keywords:

Cash Holdings, Firm Performance, Corporate Governance, Board Independence, Independent Directors

Abstract

The debate on the need for cash holdings for firms has increased in recent years. This research aims to determine the effect of cash holdings on the performance of the commercial banking sector of Pakistan, with the moderating role of board independence. The sample of this study consists of 16 commercial banks, considering the period of 13 years from 2012 to 2024. Financial leverage, bank’s growth, and bank’s size, as control variables, are included in the study to remove bias. Cash holding is assessed by the ratio of cash and cash equivalents to total assets, and the proxy of firm performance is return on assets. The model is studied by employing the pooled regression model, fixed effects model, random effects model, and Hausman’s specification test. Findings of the study show that cash holding is positively related to the performance of commercial banks. Accordingly, bank size and bank growth also have a positive impact on the performance. Financial leverage is negatively related to return on assets. The analysis of the model shows that the relationship between cash holding and performance strengthens under the moderating role of board independence. The study recommends that banks should effectively maintain an appropriate level of cash, keeping in mind the investment and growth opportunities.

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References

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