Cash holdings, leverage, ownership concentration and board independence : evidence from Malaysia / Rahayu Izwani Borhanuddin

The study aims to investigate the relationship between cash holdings and leverage of
Malaysian companies. The main objective of this study is to investigate the relationship
between cash holdings and leverage in the context of Malaysian firms. The present
study also attempts to compare the cash holdings between companies that having low
level of ownership concentration and high level of board independence (good corporate
governance) and companies that having high level of ownership concentration and low
level of board independence (poor corporate governance). Leverage, cash flow
variability, liquidity, growth, size and capital expenditure are used as corporate cash
holdings determinants. The final sample of the study consists of 276 companies with
875 observations from six main industries on the Main Board of Bursa Malaysia over a
period of four years (2002 to 2005). Linear regression analysis was used to test the
relationship between cash holdings and leverage.
The results show that there are significant negative relationships between cash holdings
and leverage with or without control variables. In addition, this study also found that the
companies that have poor corporate governance hold a high level of cash compared to
companies that practice good corporate governance. Overall it can be concluded;
leverage acts as a substitute of cash holdings and play important part of cash
management policies.