Author(s)

Muhammad Saiful Hakim^1,2*, Chih Liang Liu¹, Aang Kunaifi²

¹Department of Finance, National Yunlin University of Science and Technology, Chinese Taipei.
²Department of Business Management, Institut Teknologi Sepuluh Nopember, Surabaya, Indonesia.

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.

Cash Holding, Shariah-Compliant Firm, Shariah Index

Hakim, M. , Liu, C. and Kunaifi, A. (2021) Cash Holdings in Shariah-Compliant Firms. Theoretical Economics Letters, 11, 47-55. doi: 10.4236/tel.2021.111003.