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Cash Holdings in Shariah-Compliant Firms
Department of Finance, National Yunlin University of Science and Technology, Chinese Taipei
Department of Finance, National Yunlin University of Science and Technology, Chinese Taipei
Department of Business Management, Institut Teknologi Sepuluh Nopember, Surabaya, Indonesia
- 1 Department of Finance, National Yunlin University of Science and Technology, Chinese Taipei
- 2 Department of Finance, National Yunlin University of Science and Technology, Chinese Taipei
- 3 Department of Business Management, Institut Teknologi Sepuluh Nopember, Surabaya, Indonesia
Theoretical Economics Letters·Volume 11 (2021)·Pages 47–55·Published 6 January 2021·DOI10.4236/tel.2021.111003
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Abstract
The restrictions of a shariah-compliant index could have consequences for corporate finance. This research investigates the difference in cash holding policies between shariah-compliant and conventional firms in the Indonesia capital market. Our empirical results suggest that a shariah-compliant firm holds significantly less cash compared to a conventional firm . The empirical finding still maintains after excluding top performers in the market and after controlling for other proxies of cash holdings and shariah-compliant firms. Our results suggest that the reputation benefit from a shariah-compliant index could outpace the cost of restrictions under a lenient shariah regulation environment.
KeywordsCash HoldingShariah-Compliant FirmShariah Index
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