DETERMINANTS OF CASH HOLDING: EVIDENCE FROM THE NON-BANK FINANCIAL SECTOR OF PAKISTAN

Determining optimal cash holding is vital to avoid financial distress, to enjoy strategic superiority, and to maximize the wealth of shareholders. The research on cash holding of the financial sector is still in its infancy in general and in Pakistan in particular. The main objective of this study is to explore “the determinants of cash holding” of 110 non-bank financial firms listed on the Pakistan Stock Exchange from 2011 to 2017. The audited financial data of sample financial firms have been collected from the “Financial Statement Analysis of Financial Sector 2011-2017” which is the publication of State Bank of Pakistan. This study employs dif erent methods including correlation analysis, Panel unit root test, Pooled OLS, Fixed ef ect, and Random ef ect Models of regression to analyze the data in Eviews 9. The results show the negative effect of cash flow, size, and positive impact of growth opportunities are consistent with the prediction of trade-of theory. This indicates that firms with higher cash flow and larger firms hold fewer cash reserves and firms with more growth opportunities hold higher cash. However, the positive influence of ROA and the negative impact of leverage of the firm confirmed the presence of free cash flow and pecking order theories. This indicates that profitable firms hold more cash and highly leveraged firm tend to keep more cash in hand to avoid financial distress.