Financial statement comparability, cash flow volatility, capital expenditure: are they related to cash holding?

Abstract

Abstract This study examines the relationship between financial statement comparability, cash flow volatility, and capital expenditure on cash holding in Indonesia, a developing country with weak investor protection and high agency costs. By analyzing a panel dataset of 2,387 firm-year data of publicly listed Indonesian companies from 2009 to 2019 using random effect panel data regression, the research findings indicate that financial statement comparability has a positive impact on cash holding. On the other hand, capital expenditure shows a significant non-positive effect on cash holding. Interestingly, the volatility of cash flow does not have a significant influence on cash holding. These results suggest that having comparable financial statements helps address agency problems and encourages firms to prioritize internal capital for project financing. This study highlights the crucial role of financial statement comparability and internal capital in shaping cash holding behavior in the specific context of weak investor protection and high agency costs in developing countries like Indonesia.

Keywords

• Financial statement comparability
• Cash holding
• Cash flow volatility
• Capital expenditure