Business Review


In this study, the relationship between corporate cash holdings and corporate governance variables is tested in Pakistan. The sample consists of 309 non-financial firms listed on the Karachi Stock Exchange (KSE) over the time span of 2002 to 2010. The study uses several proxies for corporate governance mechanisms such as percentage ownership held by directors, institutional investors, and five largest shareholders, the existence of audit committees and a measure of concentration of ownership. To avoid omitted variable bias, the study also controls for all well-known determinants of corporate cash holdings (market to-book ratio, growth, size, leverage, R&D investments, cash flow volatility and cash flows). The two main findings of the study are (i) director’s ownership and board size are negatively related with corporate cash holdings. The institutional shareholdings, concentration of shares and the ownership percentage of 5 big shareholders are directly related to cash holdings. (ii) Among the control variables, growth and size are insignificant while dividend and cash flows are positively associated with cash holdings and leverage, capital expenditure and net-working capital are negatively related to cash holdings. The findings imply that managers of the firms do not misuse the cash when more monitoring and control is involved by the shareholders. The results also indicate that cash holdings by the firms are maintained for the dividend payments. Finally, debt and working capital act as a cash substitute for firms which lead to less cash holdings.


Cash holdings, Corporate governance, Non-financial firms, Karachi Stock Exchange



Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Published Online

March 30, 2021



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