Cash level and corporate performance: evidence from the Gulf Cooperation Council countries

• Main Author: Turki Alshammari
• Format: Article
• Language: English
• Published: LLC "CPC "Business Perspectives" 2020-10-01
• Series: Investment Management & Financial Innovations
• Subjects: corporate liquidity; firm value; market share; panel data; ROA; Tobin’s Q
• Online Access: https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/14175/IMFI_2020_04_Alshammari.pdf

This study aims to examine the connection between cash level and corporate performance, as well as the cash level determinants for all nonfinancial firms in the Gulf Cooperation Council (GCC) countries. The empirical analysis employs numerous statistical techniques such as panel regression models and the Generalized Methods of Moments (GMM). The main result of the study confirms a positive relationship between the cash level and both the corporate performance and the firm value, which signifies the role of cash in supporting the corporate productive activities in times of rare cash. The results also show that large firms, especially those with less leverage, experience better corporate performance. Additionally, the results demonstrate that when using different levels of cash holdings as well as different levels of firm size, both the magnitude and the significant positive effect of the cash level on corporate performance and firm value are not altered. For the determinants of the cash level, the results confirm that the most important variables are product competition, free cash flow, corporate liquidity, capital expenditures, and financial constraints. The results do not confirm that the amount of dividend paid has a significant influence on the cash level. All results are robust to the various econometric specifications employed in this study. AcknowledgmentThis study is supported by Kuwait University research sector, grant number IF-03/18.