Cash Holdings in Shariah-Compliant Firms
Open Access
- 1 January 2021
- journal article
- research article
- Published by Scientific Research Publishing, Inc. in Theoretical Economics Letters
- Vol. 11 (01), 47-55
- https://doi.org/10.4236/tel.2021.111003
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.Keywords
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