Corporate cash holdings, firm performance and national governance: evidence from emerging markets

Purpose - This paper aims to document the impact of corporate cash holdings on firm performance in Middle East and North African (MENA) emerging markets. The authors also examine how the quality of national governance shapes the interaction between corporate cash holdings and firm performance. Design/methodology/approach - The authors employ data from non-financial firms listed on the stock markets of twelve MENA countries between 2004 and 2018. The empirical model avoids the shortcomings of the prior literature by applying a dynamic framework to the relationship between cash holdings and firm performance. Findings - This research reports a significant positive relationship between corporate cash holdings and firm performance. The results appear to be more pronounced in countries with strong national governance and more developed institutional settings. The findings demonstrate that most benefits of corporate cash holdings can be achieved under strong institutional settings. The authors argue that the positive impact that national governance has on individual firms by reinforcing investors' protection and lowering agency problems increases the added value of cash holdings. Practical implications - The findings should encourage local authorities and policymakers to reinforce the law and instigate new regulations to strengthen the quality of national governance and restore the integrity of local markets. Originality/value - Prior studies have largely been silent on how national governance can shape the relationship between corporate cash holdings and firm performance. This paper draws attention to this issue within the context of MENA emerging markets. To the authors' best knowledge, this is the first study that explores the interaction between cash holdings, firm performance and national governance in MENA emerging markets.