Does national culture affect cash holdings of social enterprises? Evidence from microfinance institutions

In this study, we apply a cultural perspective to analyze cash holding behavior in hybrid social enterprises, which employ unique business models and navigate competing financial and social goals. We argue that cultural values shape managers' day-to-day financial management activities and decision-making, affecting the cash holdings of microfinance institutions (MFIs) with this effect moderated by the sector's distinctive operational characteristics. To test this, we utilize four cultural traits – uncertainty avoidance, power distance, collectivism, and gender egalitarianism - and construct an unbalanced panel dataset of 870 MFIs (4878 MFI-year observations) operating in 22 countries. Our findings reveal that cash holding is positively related to uncertainty avoidance and power distance, while it is negatively associated with collectivism and gender egalitarianism. These results hold even when we use an alternative measure of cash holding and when we employ instrumental variables to address endogeneity. We also discover that the impact of cultural values on cash holdings is shaped by portfolio quality, funding sources, and competitive condition of the microfinance market. Furthermore, we shed light on the detrimental impact of cash holdings on economic and borrower outreach performance, and how national culture moderates this impact, providing valuable insights for policymakers and practitioners in the finance and microfinance sectors.