Kamarun Nisham Taufil Mohd ¹, Rohaida Abdul Latif ², Isam Saleh ¹

Affiliations
1 School of Economics, Finance and Banking, College of Business, Universiti Utara Malaysia, MY
2 School of Accountancy, College of Business, Universiti Utara Malaysia, MY

Abstract

Background/Objectives: This paper examines the influence of companies' specific governance mechanisms, namely managerial ownership, board size, institutional ownership and CEO-duality, in determining cash holdings in an emerging market setting. Methods/Statistical Analysis: Sample companies are non financial and publicly listed on Bursa Malaysia Main Market for the year between 2008 and 2010. Companies in the financial, utility and infrastructures (IPC) sectors are excluded as they are subjected to different regulatory requirements. Those companies with missing financial data are also excluded. The final sample consists of 2022 observations. Based on Hausman's specification test, fixed-effects panel data model is preferable to random effects model. Therefore, the fixed-effects model is employed. Findings: This study finds that managerial ownership and CEO-duality can significantly influence higher level of cash holdings while the existence of Government Linked Institutional Companies (GLICs) and leverage level can significantly curb the existence of cash pile up. The significant influence of CEO-duality and director ownership on cash holdings suggests that agency problems are much higher for companies with these types of characteristics and it is consistent with the findings of6,20,21. Government ownership, through shareholdings by GLICs, could reduce information asymmetry problems as GLICs could monitor managerial actions and reinforces the finding of25. The findings of this study show that the Securities Commission of Malaysia's recommendation to separate the roles of CEO and chairman is good as it could reduce the abuse of power. Furthermore, institutional investors with significant shareholdings, such as GLICs, can play a role in monitoring managerial actions so that managers will not take actions that are detrimental to the interest of the minority shareholders. Application/Improvements: External monitoring, as prescribed by Malaysian Codes on Corporate Governance, either in the form of GLICs or debt holders, can curb excessive cash holdings.

Keywords

Cash Holdings, CEO Duality, Institutional Ownership.

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