THE IMPACT OF CORPORATE GOVERNANCE ON CASH HOLDINGS: A COMPARATIVE STUDY OF THE MANUFACTURING AND SERVICE INDUSTRY

Abstract

In this study, a comparative analysis of manufacturing and services industry is conducted to test the relationship between corporate governance and cash holdings of non-financial listed firms in Pakistan. Several proxies for corporate governance were used, such as the institutional ownership, directors’ ownership, ownership concentration, board size and board independence. To avoid omitted variable bias in explaining cash holdings of these firms, seven control variables were also included namely growth, dividend, size, leverage, capital expenditures, net-working capital and cash flows. The study reveal that for manufacturing firms the growth is found to be positively related with cash holdings, while size of firm, leverage and networking capital are negatively related with the cash holdings. On the other side, for servicing firms, board independence and dividend are directly related to cash holdings while leverage and net-working capital are negatively related to cash holdings by these firms. However, most of the proxies are found to be insignificant, which is an indication of weak corporate governance in Pakistan in determining the cash holding decision.

Keywords

• board of directors
• ownership structure
• ownership concentration
• non-financial firms
• karachi stock exchange