TITLE:
Cash Holdings in Shariah-Compliant Firms
AUTHORS:
Muhammad Saiful Hakim, Chih Liang Liu, Aang Kunaifi
KEYWORDS:
Cash Holding, Shariah-Compliant Firm, Shariah Index
JOURNAL NAME:
Theoretical Economics Letters,
Vol.11 No.1,
February
4,
2021
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.