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Corporate ESG performance, Shariah-compliant status and cash holdings

Author

Listed:
  • Akmalia Mohamad Ariff
  • Norakma Abd Majid
  • Khairul Anuar Kamarudin
  • Ahmad Firdhauz Zainul Abidin
  • Siti Nurain Muhmad

Abstract

Purpose - This study aims to examine the association between environmental, social and governance (ESG) performance and cash holdings, as well as whether this association is moderated by Shariah-compliant status. The aim was to test the joint effect of two ethical precepts, namely, the ESG and Shariah-compliant status, in explaining variations in cash holdings. Design/methodology/approach - A sample set that consisted of 9,244 firm-year observations from 25 countries from 2016 to 2020 was analysed using regression analysis. Firm-level data were sourced from Thomson Reuters and Refinitiv databases, while country-level data were derived from the World Bank and Hofstede Insights websites. Findings - Firms with greater ESG performances were found to have higher cash holdings. The positive association between ESG performance and cash holdings was greater for Shariah-compliant firms compared to non-Shariah-compliant firms. In support of the stakeholder theory, the evidence indicated that Shariah-compliant firms with higher ESG commitments also have higher cash holdings as part of their corporate strategy. Practical implications - These findings provided further comprehension to investors that ESG practices among Shariah-compliant firms are essential information during investment decision-making processes. Social implications - These findings highlighted ethical corporate practices through two frameworks, namely, ESG commitment and Shariah compliance; hence, contributing towards strategies to reach the Sustainable Development Goal 16 of promoting just, peaceful and inclusive societies. Originality/value - This study has focused on the motives for cash holdings by considering the ethical precepts embodying ESG and Shariah compliance to uphold the positive impact of high cash reserves.

Suggested Citation

  • Akmalia Mohamad Ariff & Norakma Abd Majid & Khairul Anuar Kamarudin & Ahmad Firdhauz Zainul Abidin & Siti Nurain Muhmad, 2023. "Corporate ESG performance, Shariah-compliant status and cash holdings," Journal of Islamic Accounting and Business Research, Emerald Group Publishing Limited, vol. 15(3), pages 534-552, April.
    • Handle: RePEc:eme:jiabrp:jiabr-08-2022-0217
    DOI: 10.1108/JIABR-08-2022-0217
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    More about this item

    Keywords

    ESG; Corporate cash holding; Shariah compliance; Cross-country analysis; G18; G38; M41; M43; M44;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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