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The Interaction Between Asset Tangibility, Cash Holdings, and Financial Development: An Evidence from Emerging Economy

Author

Listed:
  • Mohammad AL-Gharaibeh

    (Department of Finance and Banking Sciences, Yarmouk University, Jordan)

  • Aamir Ali

    (College of Commerce, Government College University Faisalabad, Punjab, Pakistan)

  • Umar Farooq

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an, Shaanxi, P. R. China; Research Fellow, Department of Economics, University of Religions and Denominations, Qom, Iran)

  • Lara Alhaddad

    (Department of Finance and Banking Sciences, Yarmouk University, Jordan)

Abstract

[Objective] This research delves into the intricate relationships among asset tangibility, corporate cash holdings, and corporate financial development within corporate firms. The primary aim is to estimate these interactions and discern their direct and combined impacts through empirical analysis. [Design/methodology/approach] Utilizing Financial Statement Analysis (FSA) data spanning from 2010 to 2019, comprising 220 corporate firms and 1,947 observations, this study employs panel data analysis techniques. The research evaluates the direct influence of asset tangibility on corporate cash holdings and examines the joint effect of corporate financial development on both asset tangibility and corporate cash holdings. The methodology involves various analytical tools, including descriptive statistics, correlation analysis, fixed effect models, random effect models, Hausman tests, and various diagnostic tests. These methodologies ensure the rigor and validity of the estimations and econometric approaches. [Findings] The findings reveal significant associations. Firstly, asset tangibility negatively correlates with corporate cash holdings, indicating that firms with higher tangible asset structures tend to maintain lower cash reserves. Moreover, a negative relationship exists between corporate financial development and asset tangibility, suggesting that financially developed firms tend to possess lower tangible assets. [Implications] Understanding the inverse relationship between asset tangibility and cash reserves can guide firms in optimizing asset composition, potentially leading to more efficient resource allocation and strategic decision-making, particularly in emerging economies. [Novelty] This study underscores the interdependent nature of asset tangibility, corporate cash holdings, and financial development within corporate entities. The outcomes contribute valuable insights into the strategic management of tangible assets and cash reserves, particularly in financial development among corporate firms.

Suggested Citation

  • Mohammad AL-Gharaibeh & Aamir Ali & Umar Farooq & Lara Alhaddad, 2023. "The Interaction Between Asset Tangibility, Cash Holdings, and Financial Development: An Evidence from Emerging Economy," Advances in Decision Sciences, Asia University, Taiwan, vol. 27(4), pages 114-132, December.
    • Handle: RePEc:aag:wpaper:v:27:y:2023:i:4:p:114-132
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    More about this item

    Keywords

    Corporate Cash Holdings; Asset Tangibility; Financial Development; Fixed Effect; Pakistan;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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