The effect of financial performance, IOS, and firm size on cash holdings: the role of dividend policy as moderating variable

Woen Cliff Wibowo; Sugeng Wahyudi

doi:10.14710/dijb.2.2.2019.96-106

DOI: https://doi.org/10.14710/dijb.2.2.2019.96-106

The effect of financial performance, IOS, and firm size on cash holdings: the role of dividend policy as moderating variable

Woen Cliff Wibowo , Sugeng Wahyudi

Universitas Diponegoro, Indonesia

Citation Format:

Abstract

This study aims to determine and analyze the effect of financial performance (profitability, leverage, capital expenditure, liquid asset substitute), IOS, and company size on cash holding by using dividend policy as a moderating variable. The number of samples of this study was 108 observations of non-financial companies in the LQ 45 Index for the period of 2011-2016. The results of moderated regression analysis (MRA) shows that profitability has a positive effect on cash holding, while leverage, liquid asset substitute, IOS, and firm size have negative effect on cash holdings. The results of this study also show that dividend policy can be a moderating variable which weakens the positive effect of profitability on cash holding and strengthens the negative effect of capital expenditure, but the dividend policy is not able to moderate the influence of leverage on cash holding. As a result, the companies were able to make large dividend payouts to reduce the excessive amount of cash holding that managers often abused for their own benefits and increasingly prospering investors with a given dividend.

Fulltext View|Download

Keywords: cash holding; profitability; leverage; capital expenditure; liquid asset substitute; IOS; firm size; dividend policy

Article Metrics:

Article Info

Section: Articles

Language : EN

In Vol 2, No 2 (2019)

Recent articles

Back matter Front matter The effect of inflation, profit-loss sharing loan, and capital adequacy towards performance of Indonesian Islamic banks The effect of financial performance, IOS, and firm size on cash holdings: the role of dividend policy as moderating variable Determinants of dividend payout ratio: evidence from Indonesian manufacturing companies More recent articles

Al-Najjar, B. (2013). The financial determinants of corporate cash holdings: Evidence from some emerging markets. International Business Review, 22(1), 77–88. https://doi.org/10.1016/j.ibusrev.2012.02.004
Al-Najjar, B., & Clark, E. (2017). Corporate governance and cash holdings in MENA: Evidence from internal and external governance practices. Research in International Business and Finance, 39, 1–12. https://doi.org/10.1016/j.ribaf.2016.07.030
Belghitar, Y., & Khan, J. (2013). Governance mechanisms, investment opportunity set and SMEs cash holdings. Small Business Economics, 40 (1), 59–72. https://doi.org/10.1007/s11187-011-9366-z
Drobetz, W., & Grüninger, M. C. (2007). Corporate cash holdings: Evidence from Switzerland. Financial Markets and Portfolio Management, 21(3), 293–324. https://doi.org/10.1007/s11408-007-0052-8
Ferreira,M.A., & Vilela,A.S. (2003). Why Do Firms Hold So Much Cash:Evidence From EMU Countries, European Financial Management, 10, 295-319. http://dx.doi.org/10.2139/ssrn.614002
Foster, G. (1986). Financial statement analysis, New Jersey: Prentice-Hall Englewood Cliffs
Gill, A., & Shah, C. (2012). Determinants of corporate cash holdings: Evidence from Canada. International Journal of Economics and Finance, 4(1), 70-79
Jani, E., Hoesli, M., & Bender, A. (2011). Corporate Cash Holdings and Agency Conflicts. SSRN Electronic Journal, 1–30. https://doi.org/10.2139/ssrn.563863
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American economic review, 76(2), 323-329
Jensen, M. C. (2007). Agency Costs of Free Cash Flow , Corporate Finance , and Takeovers Michael C . Jensen The American Economic Review , Vol . 76 , No . 2 , Papers and Proceedings of the Ninety-Eighth Annual Meeting of the American Economic Association . ( May , 1986 ), pp . 76(2), 323–329
Kariuki, S. N., Namusonge, G. S., & Orwa, G. O. (2015). Determinants of corporate cash holdings: evidence from private manufacturing firms in Kenya. International Journal of Advanced Research in Management and Social Sciences, 4(6), 15-33
Keynes, John M. (1936). The General Theory of Employment, Interest and Money (pp. 170-174) , New York: Harcout Brace Jovanovich
Kim, J., Kim, H., & Woods, D. (2011). Determinants of corporate cash-holding levels: An empirical examination of the restaurant industry. International Journal of Hospitality Management, 30(3), 568–574. https://doi.org/10.1016/j.ijhm.2010.10.004
Lian,Y., Sepheri,M., Foley,M. (2009). in T Imes of F Inancial C Risis. European Business Organization Law Review, 1(71002056), 1–8. https://doi.org/10.1093/ajae/aaq031
Lintner, J. (1962) Dividends, Earnings, Leverage, Stock Prices and the Supply of Capital to Corporations. The Review of Economics and Statistics, 44, 243-269
http://dx.doi.org/10.2307/1927792
Mesfin, E. A. (2016). The Factors Affecting Cash Holding Decisions Of Manufacturing Share Companies In Ethiopia. International Journal of Advanced Research in Management and Social Sciences, 5(3), 48–67
Miller, M. H., Orr, D. (1966). A Model of the Demand for Money by Firms. The Quarterly Journal of Economics. 80(3), 413-435
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0
Naoki, S. (2012). Firms’ Cash Holdings and Performance: Evidence from Japanese corporate finance
Ogundipe, S. E., Salawu, R. O., & Ogundipe, L. O. (2012). The Determinants of Corporate Cash Holdings in Nigeria: Evidence from General Method of Moments (GMM). International Journal of Social, Behavioral, Educational, Economic, Businessand Industrial Engineering, 6(1), 152–158. Retrieved from scholar.waset.org/1999.1010/4420
Rizwan, M., Javed, T (2011). Determinants of corporate cash holdings : Evidence From Pakistani Corporate sector. Journal of Economics, Management and financial Markets 6 (1), 344-358
Yang, X., Han, L., Li, W., Yin, X., & Tian, L. (2017). Monetary policy, cash holding and corporate investment: Evidence from China. China Economic Review, 46(September), 110–122. https://doi.org/10.1016/j.chieco.2017.09.001

Last update:

No citation recorded.

Last update:

No citation recorded.

Author(s) Rights

In order for Diponegoro International Journal of Business (DIJB) to publish and disseminate research articles, we need publishing rights (transferred from author(s) to publisher). This is determined by a publishing agreement between the author(s) and DIJB. This agreement deals with the transfer or license of the copyright of publishing to DIJB, while authors still retain significant rights to use and share their own published articles. DIJB supports the need for authors to share, disseminate and maximize the impact of their research and these rights, in any databases.

As an author, you have rights to a large range of uses of your article, including use by your employing institute or company. These Author rights can be exercised without the need to obtain specific permission. Authors publishing in DIJB has wide rights to use their works for teaching and scholarly purposes without needing to seek permission, including:

use for classroom teaching by Author or Author's institution and presentation at a meeting or conference and distributing copies to attendees;
use for internal training by the author's company;
distribution to colleagues for their research use;
use in a subsequent compilation of the author's works;
inclusion in a thesis or dissertation;
reuse of portions or extracts from the article in other works (with full acknowledgement of final article);
preparation of derivative works (other than commercial purposes) (with full acknowledgement of final article);
voluntary posting on open web sites operated by author or author’s institution for scholarly purposes,

(but it should follow the open-access license of Creative Common CC-by-SA License).

Authors/readers/third parties can copy and redistribute the material in any medium or format, as well as remix, transform, and build upon the material for any purpose, even commercially, but they must give appropriate credit (the name of the creator and attribution parties (authors detail information), a copyright notice, an open-access license notice, a disclaimer notice, and a link to the material) and provide a link to the license.

Authors/readers/third parties can read, print and download, redistribute or republish the article (e.g. display in a repository), translate the article, download for text and data mining purposes, re-use portions or extracts from the article in other works, sell or re-use for commercial purposes, remix, transform, or build upon the material, they must distribute their contributions under the same license as the original Creative Commons Attribution-ShareAlike (CC BY-SA).

Copyright Transfer Agreement for Publishing (Publishing Right)

The authors submitting a manuscript do so on the understanding that if accepted for publication, the copyright for publishing (publishing right) of the article shall be assigned/transferred to the Department of Management, Faculty of Economics and Business, Universitas Diponegoro as the publisher of DIJB.

Upon acceptance of an article, authors will be asked to complete a 'Copyright Transfer Agreement for Publishing (CTAP)'. An e-mail will be sent to the Corresponding Author confirming receipt of the manuscript together with a CTAP form by the online version of this agreement.

DIJB, the publisher, and the editorial board make every effort to ensure that no wrong or misleading data, opinions or statements be published in the journal. In any way, the contents of the articles and advertisements published in DIJB are sole and exclusive responsibility of their respective authors and advertisers.

Remember, even though we ask for a transfer of copyright for publishing (CTAP), our journal Author(s) retain (or are granted back) significant scholarly rights as mentioned before.

The Copyright Transfer Agreement for Publishing (CTAP) Form can be downloaded here