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Cash holdings in MENA region: evidence from trade-off model, pecking order theory, and agency theory

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  • Tahir Akhtar

    (University of Ha’il)

Abstract

This study examines firms’ cash holdings (CH) in the MENA region. For the period 2000–2020, the fixed effect method and GMM are applied to a sample of 1053 non-financial firms. The results show that firms that are large in size, and higher in cash flows, R&D, and dividend payments have higher CH. In contrast, firms with higher growth opportunities, net working capital, financial leverage, and capital expenditures have lower cash. The subsample analyses show that larger firms with higher leverage have higher CH while paying higher dividends reduces CH in these firms. Furthermore, cash flow plays an effective role in small firms, while R&D lowers CH in low-liquidity firms. The majority of the results supported the pecking order theory and the trade-off model, and only a few supported the agency theory. The study identifies major CH determinants in the MENA region by integrating results with the trade-off model, financing hierarchy, and agency theory. The study provides insights into the firm’s decision to hold cash based on transaction costs and precautionary and agency motives.

Suggested Citation

  • Tahir Akhtar, 2025. "Cash holdings in MENA region: evidence from trade-off model, pecking order theory, and agency theory," Future Business Journal, Springer, vol. 11(1), pages 1-18, December.
    • Handle: RePEc:spr:futbus:v:11:y:2025:i:1:d:10.1186_s43093-025-00454-5
    DOI: 10.1186/s43093-025-00454-5
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    More about this item

    Keywords

    Cash holdings; Financial determinants; Pecking order theory; Trade-off model; MENA;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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