Determinants of Corporate Cash Holding: Evidence from an Emerging Market

The objective of this study is to examine the impact of several variables in explaining variations in cash holding for a sample of (62) manufacturing companies listed on the Amman Stock Exchange (ASE) during the period (2012-2017). The rsults indicates that on average the company holds 6.69% of its net assets (total assets - cash and cash equivalents) as cash and cash equivalents, with a standard diviation of 11.60% suggesting that there is a large variations between the sample companies/years in the cash holdings. Using multiple regression analysis, the results identified, as hypothesized, cash flows and dividends to be positively and significantly associated with variation in cash holdings at the 1% level. Thus, companies with higher amounts of generated cash flows and pay dividends hold more cash than other companies. In addition, size is found (as hypothesized) to be negatively significant, though, at the 10% level. From the coefficients of the variables, the result for the cash flows variable is consistent with the pecking order theory which predicts a positive relationship between cash flow and cash holdings. On the other hand, the negative coefficient of the size variable supports the prediction of the trade-off theory. It also suggests that when a need exists for cash, larger firms have better access to capital markets as compared to smaller firms.