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Governance and Financial Constraints as Moderating the Relationship Between Cash Holdings and Firm Value

In: Proceedings of the International Conference on Business, Management, Accounting and Sustainable Economy (ICBMASE 2023)

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  • Adilah Permananingrum

    (National University)

Abstract

The relationship between the ideal amount of cash a company holds and the firm value produces varying results. This research, therefore, contributes to this relationship by looking at the role of corporate governance and financial constraints. The sample was taken using a purposive sampling technique, and a company sample of 219 companies was obtained with an observation period of 10 years (2012–2021 period). The analysis used is the Ordinary Least Square (OLS) estimation method with the help of STATA 15.1. The results support the agency theory that excess cash the company holds reduces firm value. None of the governance variables significantly moderate cash holding and firm value. In contrast to the company’s financial condition, a company increasingly experiencing financial constraints will strengthen the decreasing effect of increased cash holding on firm value. Companies must try to set cash holdings in an ideal amount, not to reduce firm value. Likewise, companies must also try to prevent financial constraints from occurring in order to maintain firm value stability.

Suggested Citation

  • Adilah Permananingrum, 2024. "Governance and Financial Constraints as Moderating the Relationship Between Cash Holdings and Firm Value," Advances in Economics, Business and Management Research, in: Ahmad Farabi & Sharifah Nabilah Syed Salleh & Qurroh Ayuniyyah & Nawalin Nazah (ed.), Proceedings of the International Conference on Business, Management, Accounting and Sustainable Economy (ICBMASE 2023), pages 132-142, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-394-8_13
    DOI: 10.2991/978-94-6463-394-8_13
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