CORPORATE CASH HOLDINGS AND SHAREHOLDER WEALTH: EVIDENCE FROM PAKISTANI MARKET

Sabeeh Ullah, Yasir Kamal

Abstract


The purpose of this study is to understand the influence of
cash holdings on shareholder wealth in Pakistan. After probing panel
data ranging from 2006 to 2014, the study provides evidence that the
size of the firm (RSIZE) shows noteworthy positive correlation with
cash holding, whereas Leverage and Close Cash Substitute (CCS)
are negatively related to cash holding. The negative correlation of
leverage with cash holding provides support to the “pecking-order
theory” in that companies use cash funds to pay back obligations
when they turn out to be outstanding. These results also contribute
some backing to the trade off theory, especially to (Keynes, 1936)
“precautionary motive” where companies stockpile more cash. This
study also funds that excess cash holding has a positive relation with
market capitalization, which means that excess cash holdings
increase shareholder wealth. These results are contrary to the earlier
studies and reflect that excess cash holding has an effect on
shareholder wealth in Pakistan.


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