NBR Volume-4 Issue-1 2022 (January-June)
DOES OPTIMAL CASH HOLDING MATTER IN MAINTAINING AND IMPROVING PROFITABILITY?
Nimra Riaz
Lyallpur Business School, Government College University Faisalabad, Pakistan
Ahsan Riaz
Lyallpur Business School, Government College University, Faisalabad, Pakistan
Syed Hamad Raza
Lyallpur Business School, Government College University, Faisalabad, Pakistan
Syed Muhammad Ahmad Hassan Gillani
Lyallpur Business School, Government College University, Faisalabad, Pakistan
Faiz Rasool
Institute of Business Management Sciences, University of Agriculture,
Faisalabad, Pakistan
ABSTRACT
Purpose: This study aims to identify optimal cash holding factors and how they impact Pakistani-listed enterprises’ profitability.
Design/Methods: The trade-off and pecking order theories are investigated to develop hypotheses for testing the cash holding threshold influence on a firm’s profitability on 201 selected firms extracted from the Osiris database between 2009 and 2018.
Results/ Findings: The findings of the present study indicate that cash holdings, liquidity, financial flexibility, and operating cash flow significantly impact profitability. There is a two-threshold effect between the cash holding ratio and business profitability. The coefficient value is positive but decreases as the cash holdings ratio falls below 5.3%, indicating a non-linear relationship.
Originality: The elements affecting the ideal cash holding ratio that Pakistani listed companies must maintain to ensure cash sustainability are examined in this study. Previous studies have focused on the determinants and motivations for cash holding. Still, it has never addressed how much cash a company should keep to achieve long-term profitability or cash independence.
Keywords: Cash Holding; Firm’s Profitability; Threshold Regression; Panel Data
Article History:
Received: 15 May 2022
Revised: 19 Aug 2022
Accepted: 22 Aug 2022
Published: 25 Aug 2022
Paper type: Research Paper
Full-Length Paper: PDF
DOI: https://doi.org/10.37435/NBR22051501
This is an open-access article under the CC BY 4.0 license 