Next Article in Journal
Potential Predictors of Psychologically Based Stock Price Movements
Previous Article in Journal
Estimation of Optimal Hedge Ratio: A Wild Bootstrap Approach
Previous Article in Special Issue
Impact of Ownership Structure and Dividends on Firm Risk and Market Liquidity
 
 
Search for Articles:
Title / Keyword
Author / Affiliation / Email
Journal
Article Type
 
 
Advanced Search
 
Section
Special Issue
Volume
Issue
Number
Page
 
Journals
JRFM
Volume 17
Issue 7
10.3390/jrfm17070311
jrfm-logo
Submit to this Journal Review for this Journal Propose a Special Issue
► Article Menu

Article Menu

share Share announcement Help format_quote Cite question_answer Discuss in SciProfiles thumb_up
...
Endorse textsms
...
Comment
first_page
settings
Order Article Reprints
Font Type:
Arial Georgia Verdana
Font Size:
Aa Aa Aa
Line Spacing:
Column Width:
Background:
Article

Corporate Cash Holdings and Investment Efficiency: Do Women Directors and Financial Crisis Matter?

by
Ardianto Ardianto
1,* and
Noor Adwa Sulaiman
2
1
Department of Accounting, Faculty of Economics and Business, Universitas Airlangga, Surabaya 60115, Indonesia
2
Department of Accounting, Faculty of Economics and Business, University of Malaya, Cyberjaya 63100, Malaysia
*
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2024, 17(7), 311; https://doi.org/10.3390/jrfm17070311
Submission received: 18 May 2024 / Revised: 10 July 2024 / Accepted: 12 July 2024 / Published: 22 July 2024
(This article belongs to the Special Issue Risk Management in Capital Markets)
Versions Notes

Abstract

:
This study investigates the relationship between corporate cash holdings and investment efficiency, with a focus on how COVID-19 and the presence of women directors may influence this relationship. Using data from Indonesian public companies during the COVID-19 period, comprising 2350 firm-year observations, we employ fixed-effect regression models with industry and year controls to test our hypotheses. Robustness and endogeneity tests are conducted to ensure the reliability of our findings. Our research reveals that companies with larger cash reserves tend to experience decreased investment efficiency during the COVID-19 crisis. Moreover, the negative impact of substantial cash reserves on investment efficiency is exacerbated by the presence of female directors on the board. However, our findings also suggest that female directors can mitigate the adverse effects of excessive cash reserves on a company’s investment efficiency, particularly during unforeseen economic challenges such as the pandemic.

1. Introduction

Do companies that maintain high levels of cash regularly contribute to improved investment efficiency? Additionally, does the presence of female directors on the board influence policies related to excess cash and enhance investment effectiveness? Recently, the financial and corporate investment sectors were shaken by an economic crisis that almost occurred, impacting the global economy (Batuman et al. 2022; Qu et al. 2022; Deng and Zhao 2022). The COVID-19 pandemic, as a global issue, significantly altered the investment landscape, causing cash management challenges for many companies (De Vito and Gómez 2020; Zheng 2022). The crisis has caused some companies to hold excessive cash reserves that can lead to complex effects on a company’s investment efficiency.
Maintaining robust cash reserves is crucial for companies to weather sudden economic disruptions and uncertainties, such as those encountered during the COVID-19 pandemic. Firms with ample cash on hand can more easily navigate emergencies, including abrupt revenue declines or escalating operating costs (Arslan-Ayaydin et al. 2014). Moreover, a surplus of cash allows for companies to seize unexpected investment opportunities, such as acquisitions or business expansions, highlighting their resilience during tough economic periods. Beyond managing short-term crises, substantial cash reserves enhance a company’s reputation among investors, creditors, and other stakeholders, signaling sound financial management and effective risk control (Quah et al. 2021; Rocca et al. 2019). However, the relationship between cash reserves and investment efficiency is complex. While some studies suggest that substantial cash holdings help firms avoid bankruptcy and continue investing despite market turbulence, others argue that excessive cash reserves may signal a lack of profitable investment opportunities (Jayakody et al. 2023; El Ghoul et al. 2023). This can lead companies to miss out on high-return projects, ultimately reducing long-term investment productivity and affecting shareholder value. Therefore, understanding the balance between maintaining sufficient cash reserves and ensuring efficient investment is essential for corporate financial strategy, especially in times of economic uncertainty.
During financial crises, such as the COVID-19 pandemic, maintaining high levels of cash is essential for corporate resilience, yet it presents a complex impact on investment efficiency (Bhuiyan and Hooks 2019). Companies with substantial cash reserves can better withstand economic shocks, manage disruptions, and seize investment opportunities, but they also risk overinvestment in low-return projects and inefficiencies due to agency costs. Prior research suggests the presence of female directors on corporate boards can significantly influence cash management policies and enhance investment efficiency (Houqe et al. 2023; Gull et al. 2018). Female directors bring diverse perspectives, improve governance, and promote prudent risk management, which is crucial during crises. Their generally risk-averse nature ensures that cash is judiciously allocated to high-return investments, balancing the need for liquidity with strategic investment (Mnif and Cherif 2020; Cahyono et al. 2023b). This diversity in boardroom decision-making fosters comprehensive risk assessments and strategic agility, enabling firms to navigate financial stress effectively. Thus, firms with balanced cash reserves and diverse boards are more resilient, leveraging their liquidity and governance structures to adapt swiftly to market changes and maintain investment efficiency (Sun et al. 2012; Trinh et al. 2022). This synergistic relationship highlights the importance of gender diversity in corporate governance, particularly in enhancing firm performance and resilience during economic downturns.
This study was conducted in Indonesia, a country distinguished by its pronounced differences in perspectives compared to other developing nations (Duong et al. 2020; Benlemlih and Bitar 2018). These differences are evident across social, economic, cultural, and political domains (Khan 2022; Bhutta et al. 2022; Jones et al. 2022). Indonesia’s capital market possesses unique characteristics that provide valuable insights to international audiences regarding enhanced investment prospects and funding opportunities (Moin et al. 2020; Goodell et al. 2021a; Guizani and Abdalkrim 2022). With a large population and a rapidly expanding middle class, Indonesia’s consumer market is growing, driving demand for a wide range of goods and services (Harris and Li 2021). This trend presents promising investment opportunities in sectors such as retail, technology, manufacturing, and financial services (Tang and Zhang 2020).
Utilizing a sample of Indonesian public companies with a total of 2456 firm-year observations during 2010–2021, we examine the relationship between corporate cash holdings and investment efficiency, moderated by the presence of female directors on the board. Our study found that companies with higher corporate cash holdings tended to experience a decline in investment efficiency during the COVID-19 crisis period. Additionally, these results show that the negative impact of high cash holdings on investment efficiency is mitigated when there are female directors in the boardroom. Furthermore, these findings suggest that the presence of female directors on the board can play an important role in mitigating the adverse impact of excessive cash accumulation on a company’s ability to invest efficiently, especially when facing unexpected economic challenges such as the pandemic crisis. The implication is that gender diversity in corporate decision-making can help strike a balance between maintaining liquidity through large cash reserves and ensuring effective utilization of funds for long-term growth.
This study makes several significant contributions to the existing literature. First, while previous research has explored the general relationship between cash holdings and investment efficiency, our study provides nuanced insights into how this relationship changes during economic crises like COVID-19. We found that both cash holdings and investment efficiency actually decreased during the pandemic, highlighting the complexities of managing cash reserves in turbulent times (Sheu and Lee 2012; Sikveland et al. 2022). Second, our research extends the literature on gender diversity in corporate governance by demonstrating that the presence of female directors can mitigate the negative impacts of economic crises on cash holdings and investment efficiency. This finding emphasizes the tangible contributions that women in leadership positions can make to a company’s performance and resilience (Adams and Ferreira 2009; Dezsö and Ross 2012). Third, by focusing on Indonesian public companies, our study provides valuable insights into the unique characteristics of an emerging market. Indonesia’s distinctive social, economic, cultural, and political contexts offer a rich backdrop for understanding how different perspectives influence corporate behavior and investment strategies (Moin et al. 2020; Goodell et al. 2021b; Guizani and Abdalkrim 2022).
This paper will be processed as follows: Section 2 explains the literature review and hypothesis development. Section 3 reports the data and research methods. Section 4 presents empirical results and discussion. Section 5 is the conclusion.

2. Literature Review and Hypothesis Development

Previous studies have demonstrated that cash holdings significantly impact investment efficiency. High levels of cash reserves within a company can affect its ability to allocate resources effectively (He and Wintoki 2016; Soesanto and Wijaya 2022; Tang and Zhang 2020). When a company holds excessive unproductive cash, it may hinder growth and reduce opportunities for more profitable investments. Researchers have found that excessive cash holdings can lead to agency problems and inefficient cash use, contributing to investment inefficiency (Biddle et al. 2009; Sheu and Lee 2012). Ozkan (2002) noted that cash reserves are crucial for stimulating growth (Cahyono et al. 2024). Therefore, it is important to determine the optimal level of cash holdings. Too much cash can lead to underutilization or investment in less profitable projects, decreasing asset returns. Conversely, too little cash can restrict a company’s ability to take advantage of profitable investment opportunities.
The asymmetric information perspective suggests that managers act in the shareholders’ interest (Chen et al. 2020). This happens because the information gap between principals (shareholders) and agents (managers) leads to higher costs for financing and project selection (Myers and Majluf 1984). As a result of these higher costs, managers might pass up good investment opportunities (Benlemlih and Bitar 2018). On the other hand, the agency view argues that managers often pursue their own interests (Chen et al. 2020). Jensen and Meckling (1976) explain that managers aim to take advantage of investment opportunities to generate wealth, not just for the shareholders. This can lead to agency problems and result in inefficient investments (Lang et al. 1991; Blanchard et al. 1994; Benlemlih and Bitar 2018). Therefore, we propose that cash holdings may have a positive relationship with company investments, supporting our hypothesis as follows:
Hypothesis 1.
Ceteris paribus, corporate cash holdings are positively related to investment efficiency.
Previous research shows that the economic crisis caused by COVID-19 affects investment efficiency through various complex mechanisms (Yip et al. 2022; Yang et al. 2017). Financial market disruptions, changes in consumer behavior, and increased business uncertainty can impact how companies allocate resources for investment. During crises like the COVID-19 pandemic, companies often face declining revenue and cash flow while operational and financial costs remain stable or even rise (Liu et al. 2022a; Chen and Liu 2023). In this scenario, investment decisions become crucial as companies must prioritize the use of limited resources.
Disruptions in supply, demand, and distribution can alter corporate investment plans (Anagnostopoulou et al. 2023; Amess et al. 2015; Aksar et al. 2022). Changes in consumer preferences, industry trends, and production capacity can force companies to adjust or halt planned investments. This can decrease investment efficiency in the short term, as projects expected to yield optimal outcomes might be delayed or canceled (Matejić et al. 2022). High uncertainty also affects the risk evaluation and returns of investment projects (Alnori and Bugshan 2022; Alkhataybeh et al. 2022). Companies might prefer safer, lower-risk investments over riskier ones with higher potential returns, impacting their overall investment portfolio and resource allocation. Based on this understanding, we propose the following hypothesis:
Hypothesis 2.
Ceteris paribus, the economic crisis due to COVID-19 has an impact on investment efficiency.
The COVID-19 crisis has significantly influenced the relationship between cash holding and investment efficiency in various and sometimes conflicting ways. Previous studies have indicated that the pandemic’s effects can alter how companies manage their cash reserves and investment decisions (Arslan-Ayaydin et al. 2022). On one hand, the pandemic has made many companies more cautious in their financial management. Due to high economic uncertainty and potential revenue declines, some companies have increased their cash reserves as a safety measure (Abed et al. 2022; Ahiadorme et al. 2018). In this scenario, the relationship between cash holding and investment efficiency may become more positive, as companies prioritize maintaining liquidity and stability. On the other hand, the pandemic has also brought unprecedented challenges. Sharp revenue decreases in certain industries have made it difficult for some companies to meet their financial needs (Ardianto et al. 2024; Phan et al. 2019). Therefore, these companies might reduce investments or halt ongoing projects, which can harm investment efficiency in the short term.
Several studies suggest that during economic crises, the relationship between cash reserves and investment efficiency can be influenced in complex and sometimes contradictory ways (Lang et al. 1991; Blanchard et al. 1994; Benlemlih and Bitar 2018). Economic downturns typically increase market uncertainty and risk, leading companies to prioritize liquidity and maintain larger cash reserves as a safety net against instability. In such scenarios, having ample cash reserves can positively affect investment efficiency by allowing companies to survive and retain financial flexibility during challenging times (Blanchard et al. 1994).
However, excessive accumulation of cash reserves can hinder investment efficiency. Companies overly focused on maintaining high liquidity might miss out on more profitable investment opportunities (Arianpoor and Mehrfard 2022; Brahmana and Kontesa 2023). This risk increases if a very conservative cash management policy reduces funding for potentially higher-yielding projects in the future. In such cases, the connection between cash reserves and investment efficiency could become negative. Therefore, we suspect that the impact of the COVID-19 economic crisis on corporate cash holdings and investment efficiency may vary inconsistently:
Hypothesis 3.
Ceteris paribus, the economic crisis due to COVID-19 has an impact on the relationship between corporate cash holdings and investment efficiency.
Past research indicates that having a diverse gender composition on corporate boards can significantly impact their operations (Atif et al. 2019). Wan Ismail et al. (2023) found that boards with female members tend to be more careful and thorough in managing financial policies. Women directors often contribute unique viewpoints and a broader outlook on risk, sustainability, and corporate governance (Ningsih et al. 2023; Roychowdhury et al. 2019).
Previous research suggests that having female directors on corporate boards can improve investment efficiency through various positive mechanisms (Loukil and Yousfi 2016; Atif et al. 2019; Wan Ismail et al. 2023). This study explores how gender diversity impacts corporate investment decisions. One key benefit is that female directors bring diverse perspectives and risk assessments to the table (Cambrea et al. 2020). Their different experiences and leadership styles foster inclusive discussions and evaluations of investment projects, leading to more balanced and informed decisions. Additionally, gender diversity can enhance group dynamics by encouraging thorough discussions, improving risk and opportunity identification, and reducing the risk of “groupthink” that can hinder the critical evaluation of investments. Therefore, we propose the following hypothesis:
Hypothesis 4.
Ceteris paribus, the presence of female directors influences the relationship between corporate cash holdings and investment efficiency.
Female directors can help counteract reduced investment efficiency caused by holding cash during the COVID-19 economic crisis. They contribute diverse perspectives and decision-making approach, which research suggests can improve risk assessment in uncertain times. Specifically, during economic crises, female directors may offer valuable insights into evolving market trends and consumer preferences, thereby mitigating negative impacts on investment efficiency (Sarang et al. 2021; Wu et al. 2022).
Diversity in leadership benefits companies by enhancing their sensitivity to changing customer needs and behaviors. This, in turn, helps companies adjust their investment strategies more effectively. Female directors, for instance, contribute uniquely to risk assessment. Research indicates that women often exhibit a more cautious approach to risk, influencing how investment projects are chosen and managed (Lee et al. 2023; Zou et al. 2021). This cautious stance can be particularly advantageous during economic crises, steering companies away from overly speculative ventures and towards more solidly grounded options (Lei et al. 2022).
Furthermore, studies suggest that having women in leadership roles on corporate boards can promote policies that are more sustainable and focused on the long term (Li et al. 2020; Li et al. 2021). This could translate into decisions that consider the broader impacts of investments, even in times of crisis. Such an approach helps companies stay committed to their long-term goals and avoid making choices solely for short-term gains (Liu et al. 2022a). Therefore, having female directors can help mitigate the negative effects on investment efficiency caused by holding onto cash during economic crises like the one triggered by COVID-19 (Liu et al. 2022b). However, it is essential to note that these effects can vary depending on factors such as the directors’ experiences, backgrounds, and individual traits.
Hypothesis 5.
Ceteris paribus, the presence of a female director can reduce the negative impact of decreasing investment efficiency on cash holdings during the economic crisis due to COVID-19.

3. Data and Research Methods

3.1. Data and Sample

The study examined companies listed on the Indonesia Stock Exchange from 2010 to 2021, using data from their annual reports. To ensure data quality, specific criteria were applied: companies lacking complete investment efficiency data were initially excluded, along with those missing control variables. This process resulted in a final sample of 2721 companies observed annually throughout the study period (Table 1). To mitigate the impact of outliers and extreme values, all continuous variables in the dataset underwent winsorization, which adjusts extreme values at the 1st and 99th percentiles. This method aims to minimize potential distortions in the data caused by unusually high or low values. This study used STATA 17.0 software and utilized fixed-effect regression to data analysis techniques using industry-fixed effects and year-fixed effects.

3.2. Variable Operationalization

The effective use of financial resources in a company involves managing and allocating funds both from within and outside the organization through appropriate financial strategies. This study primarily investigates cash holdings, which are calculated by dividing cash and cash equivalents by total assets. To assess the impact of the COVID-19 pandemic, a moderating factor called COVID-19 (COV) is introduced. COV equals 1 if a company’s fiscal year falls between 2019 and 2020, reflecting the years directly affected by the pandemic. This research focuses on investment efficiency as the outcome variable, which examines how companies make investment decisions to achieve a balanced approach without leaning towards excessive or inadequate investments. Investment efficiency is measured using a model developed by Huang (2020), with residuals derived from the corresponding equation.
INVEST (CAPX, R&D) = β0 + β1 MTBi,t − 1 + β2 SGi,t − 1 + β3 OCFi,t + β4 LEVi,t − 1 + β5 LOGSALEi,t − 1 + ei,t
The residual values obtained are converted into absolute values and then multiplied by −1 to ensure that the variable “absminINVEFF” reflects the company’s investment efficiency in the negative direction. This adjustment is necessary to align the variable’s value with the concept of investment efficiency, where a higher “absminINVEFF” value indicates greater investment efficiency. Furthermore, this study includes several control variables based on the previous literature. These control variables consist of board size (BSIZE), the natural logarithm of company age (lnAGE), company size measured by the natural logarithm of total assets (FIRMSIZE), return on equity (ROE), market-to-book ratio (MTB), property, plant, and equipment divided by total assets (PPE), and leverage measured by liabilities divided by assets (LEV).

3.3. Empirical Specification

The analytical methods employed in this study encompass descriptive statistics, Pearson correlation analysis, and least square regression analysis. Prior to conducting the analysis, it was necessary to winsorize each variable utilized in the dataset. This step was undertaken to address the potential presence of outliers, which could adversely affect the data distribution and lead to biased or inaccurately transcribed data. The winsorization process involved modifying the extreme values of the variables, specifically adjusting them to the 1st and 99th percentiles. All control variables, with the exception of the dummy variable, underwent winsorization in order to mitigate the impact of outliers on the data distribution. The regression model applied in this study was a clustered regression by firm, implemented using Stata 17.0 software. The equation model utilized in this study is as follows:
absminINVEFF = β0 + β1 CASH HOLDINGSi,t + β2 COV19i,t + β3 FEMDIRi,t + β4 BSIZEi,t + β5 INDCOMSIZEi,t + β6 LnAGEi,t + β7 FIRMSIZEi,t + β8 ROEi,t + β9 MTBi,t + β10 PPEi,t + β11 LEVi,t + e
absminINVEFF = β0 + β1 CASH HOLDINGSi,t + β2 COV19i,t + β3 FEMDIRi,t + β4 CASH HOLDINGSxCOV19i,t + β5 BSIZEi,t + β6 INDCOMSIZEi,t + β7 LnAGEi,t + β8 FIRMSIZEi,t + β9 ROEi,t + β10 MTBi,t + β11 PPEi,t + β12 LEVi,t + e
absminINVEFF = β0 + β1 CASH HOLDINGSi,t + β2 COV19i,t + β3 FEMDIRi,t + β4 CASH HOLDINGSxFEMDIRi,t + β5 BSIZEi,t + β6 INDCOMSIZEi,t + β7 LnAGEi,t + β8 FIRMSIZEi,t + β9 ROEi,t + β10 MTBi,t + β11 PPEi,t + β12 LEVi,t + e
absminINVEFF = β0 + β1 CASH HOLDINGSi,t + β2 COV19i,t + β3 FEMDIRi,t + β4 CASH HOLDINGSxCOV19i,t + β5 CASH HOLDINGSxFEMDIRi,t + β6 BSIZEi,t + β7 INDCOMSIZEi,t + β8 LnAGEi,t + β9 FIRMSIZEi,t + β10 ROEi,t + β11 MTBi,t + β12 PPEi,t + β13 LEVi,t + e
where absminINVEF is the dependent variable, CASH HOLDINGS is the independent variable, and COV19 and FEMDIR are moderating variables. The definition and operationalization of all variables are shown in Table 2.

4. Empirical Result and Discussion

4.1. Statistics Descriptive

The provided Table 3 displays descriptive statistics of the variables used in the research. To mitigate extreme values, all variables underwent winsorization at the 1% and 99% thresholds. In this study, the variable of interest is referred to as “absminINVEF”, which measures investment efficiency using a model created by the cited author. According to the research, INVEF scores range from a maximum of 0.000 to a minimum of −2.488, with an average score of −0.109. These scores reflect a wide range of investment efficiency levels among the companies. Some scores are close to zero, indicating high investment efficiency, while others, like −2.488, indicate a lack of investment efficiency.
Furthermore, this study does not differentiate between underinvestment and overinvestment as its focus lies on investment efficiency determined by the company itself. The independent variable considered in this research is “CASH HOLDING”, which measures the proportion of cash and cash equivalents to total assets in the company. On average, companies included in this study possess a cash ownership of 10.4% of total assets, with a maximum value of 96.3%. A similar pattern is observed in research conducted on UK companies, where the average cash ownership is 9.9%, and the maximum value is 98.8%. The variable “COV”, representing the impact of COVID-19, indicates the number of years since the fiscal year 2019. Based on Table 3, around 25.7% of the data used in this study are affected by COVID-19, and this variable serves as a moderator in the analysis. Furthermore, Table 3 presents several control variables: BSIZE, INDCOMSIZE, lnAGE, FIRMSIZE, ROE, MTB, PPE, and LEV. BSIZE represents the total number of board members in the company, with an average of eight individuals.

4.2. Pearson Correlation

This research employs Pearson correlation to assess the strength of the relationship between two variables. As demonstrated in Table 4, the research findings indicate that absminINVEFF exhibits a negative correlation with CASH HOLDING and COV, significant at the 10% significance level, whereas it shows a significant positive correlation at the 1% significance level. BSIZE, INDCOMSIZE, lnAGE, FIRMSIZE, ROE, and MTB also show significant relationships. Furthermore, these findings suggest that CASH HOLDING and COV impact investment efficiency (absminINVEFF).

4.3. Main Result

The results of OLS regression are presented in Table 5. The research findings indicate a significant negative relationship between CASH HOLDINGS and investment efficiency, with a coefficient value of −0.120 (t = −1.96) at a significance level of 10%. Moreover, during economic crises, the presence of CASH HOLDINGS by companies has been shown to have a detrimental impact on investment efficiency. The results demonstrate a significant negative correlation with a coefficient value of −0.202 (t = −2.06) at a significance level of 5%. Interestingly, investment efficiency tends to increase as the level of CASH HOLDINGS held by the company rises. When the company’s board includes female directors, there is a significant positive association with a coefficient value of 0.432 (t = 3.21) at a significance level of 1%. Importantly, during crisis periods, this relationship remains unaffected and does not significantly influence investment efficiency. It is evident that the interaction between CASH HOLDINGS, COVID-19, and female board directors (CASH HOLDINGSxCOV19xFEMDIR) is positively and significantly related to investment efficiency, with a coefficient value of 0.531 (t = 2.31) at a significance level of 5%. These findings support the company’s policy of involving female directors on the board to enhance effectiveness in shaping strategic policies (Cahyono et al. 2023a).

4.4. Endogeneity Concern

4.4.1. Coarsened Exact Matching

The objective of the study is to deal with potential problems linked to accounting for external influences by using the Coarsened Exact Matching (CEM) technique. CEM acts as an alternative approach to tackle the problem of biased selection and focuses on observable variables that could potentially impact the outcomes in the statistical analysis, as suggested by the reference. The CEM model includes eleven covariates. Part A of Table 6 presents the relevant overview of CEM outcomes. Among a total of 1452 linked observations, 1319 were successfully matched, while for unlinked observations, 1335 out of 1443 were matched. Part B of Table 6 provides the replicated outcomes of the model using the CEM approach. The research’s findings suggest that the coefficient for CASH HOLDING_COV is 0.230, which holds statistical significance at a 10% level of significance (t = 2.47). In the second column, CASH HOLDING is represented as −0.135, with a significance level of 10% (t = −1.97) in the first column. The table consistently aligns with the findings presented in Table 5, thus providing support for the hypotheses proposed in the study.

4.4.2. Propensity Score Matching

The results of the PSM analysis have been conducted and displayed in Table 7. We identified pairs that matched with the smallest difference in tendency scores. Specifically, we matched each observation with absminINVEFF = 1 with a unique observation with absminINVEFF = 0 using a caliper width of 0.001. Panel A presents the t-test after matching all character variables. It can be seen that there is no significant difference in covariates between companies with high and low investment efficiency. This means that the matching approach was successful. Additionally, through this analysis, we also found that the relationship between CASH HOLDINGS and investment efficiency (absminINVEFF) is significantly positive with a coefficient value (t-value) of 0.332 (t-value: 2.57) at a 5% significance level.

4.4.3. Heckman (1979) Two-Stage Least Square

Presented in column 1 of Table 8, the results of our initial stage procedure reveal a significant positive relationship between the instrument (MEAN_CASH HOLDINGS) and investment efficiency (absminINVEFF). Subsequently, we computed the inverse Mills ratio using probit regression estimates and incorporated it as a control to re-estimate the main model in Equation (1) during the second stage procedure. From this point, we ascertain that the outcomes remain consistent, indicating that CASH HOLDINGS has a significant relationship with investment efficiency (absminINVEFF), displaying a coefficient value of 0.651 (t-value: 3.49) at the 1% significance level. The inverse ratio (MILSS) yields nonsignificant results, thereby reinforcing our argument for consistency and the lack of bias in our findings.

5. Conclusions

The study concludes that maintaining high levels of cash reserves negatively impacts a company’s investment efficiency, particularly during economic crises such as the COVID-19 pandemic. Companies with larger cash holdings experienced a more significant decline in their ability to make efficient investments during the crisis period, suggesting that excessive liquidity can lead to suboptimal investment decisions. In addition, the presence of female directors on the board is found to mitigate the negative effects of high cash reserves on investment efficiency (Jiang et al. 2021). Female directors contribute diverse perspectives and enhance corporate decision-making processes, which helps promote a more strategic and effective use of cash reserves. This finding emphasizes the importance of gender diversity in corporate governance, highlighting its role in improving investment efficiency even during economic downturns. Overall, this research emphasizes the necessity for companies to adopt balanced cash management practices to avoid inefficiencies and ensure long-term growth and resilience. It also highlights that gender diversity in the boardroom is not just a matter of social equity but a strategic asset that enhances company performance and stability during crises. These conclusions advocate for integrating balanced cash management and diversity strategies into corporate policies to sustain investment efficiency and robust financial performance under varying economic conditions.
The findings have several important implications for corporate strategy and policy-making. Companies should be cautious about maintaining excessive cash reserves, as they can negatively impact investment efficiency. A balanced approach to cash management is crucial to avoid inefficiencies. Additionally, the positive impact of female directors on investment efficiency suggests that gender diversity in the boardroom can enhance strategic decision-making and resilience during economic downturns. Policymakers and regulatory bodies might consider promoting gender diversity in corporate boards as part of broader governance reforms to enhance corporate performance and investment efficiency.
Future research could explore several avenues to build on these findings. Longitudinal studies could investigate the long-term impact of cash holdings on investment efficiency, considering different economic cycles. Examining the impact of cash holdings and board diversity on investment efficiency across different industries could provide more nuanced insights. Additionally, further studies could examine the impact of other diversity metrics (e.g., ethnicity, age) on investment efficiency to provide a holistic view of the benefits of diverse boards. Finally, research could delve deeper into how different types of economic crises (e.g., financial vs. health crises) specifically impact the relationship between cash holdings, board diversity, and investment efficiency.

Author Contributions

A.A. has contributed on research analysis and writing the original draft, as well as revise the manuscript before getting the acceptance from editor; N.A.S. has contributed on several revision and review, writing original draft, and support funding on this research. All authors have read and agreed to the published version of the manuscript.

Funding

This research was fully funded by the SATU JRS University of Malaya in the 2023 period.

Data Availability Statement

The dataset using in this research is available by formal request and full commitment to use by privately.

Acknowledgments

We would like to thank Suham Cahyono for his assist me regarding the revision and collecting the dataset for this research. He also contributed as research assistant on several task on this paper.

Conflicts of Interest

The authors declare no conflict of interest.

References

  1. Abed, Ibtihal A., Nazimah Hussin, Mostafa A. Ali, Hossam Haddad, Maha Shehadeh, and Elina F. Hasan. 2022. Creative accounting determinants and financial reporting quality: Systematic literature review. Risks 10: 76. [Google Scholar] [CrossRef]
  2. Adams, Renée B., and Daniel Ferreira. 2009. Women in the boardroom and their impact on governance and performance. Journal of Financial Economics 94: 291–309. [Google Scholar] [CrossRef]
  3. Ahiadorme, Johnson Worlanyo, Agyapomaa Gyeke-Dako, and Joshua Yindenaba Abor. 2018. Debt holdings and investment cash flow sensitivity of listed firms. International Journal of Emerging Markets 13: 943–58. [Google Scholar] [CrossRef]
  4. Aksar, Muhammad, Shoib Hassan, M. Kayani, Suleman Khan, and Tanvir Ahmed. 2022. Cash holding and investment efficiency nexus for financially distressed firms: The moderating role of corporate governance. Management Science Letters 12: 67–74. [Google Scholar] [CrossRef]
  5. Alkhataybeh, Ahmad, Safaa Adnan AlSmadi, Mohammad Ziad Shakhatreh, and Mohammad A. Khataybeh. 2022. Government Ownership and Corporate Cash Holdings: Empirical Evidence from the Amman Stock Exchange. Sustainability 14: 11168. [Google Scholar] [CrossRef]
  6. Alnori, Faisal, and Abdullah Bugshan. 2022. Cash holdings and firm performance: Empirical analysis from Shariah-compliant and conventional corporations. International Journal of Islamic and Middle Eastern Finance and Management 16: 498–515. [Google Scholar] [CrossRef]
  7. Amess, Kevin, Sanjay Banerji, and Athanasios Lampousis. 2015. Corporate cash holdings: Causes and consequences. International Review of Financial Analysis 42: 421–33. [Google Scholar] [CrossRef]
  8. Anagnostopoulou, Seraina C., Lenos Trigeorgis, and Andrianos E. Tsekrekos. 2023. Enhancement in a firm’s information environment via options trading and the efficiency of corporate investment. Journal of Banking & Finance 149: 106809. [Google Scholar]
  9. Ardianto, Ardianto, Nadia Anridho, Suham Cahyono, Abu Hanifa Md Noman Alam, and Iman Harymawan. 2024. The role of risk management committee on the relationship between corporate carbon emission disclosure and capital structure. Corporate Social Responsibility and Environmental Management 31: 1–32. [Google Scholar] [CrossRef]
  10. Arianpoor, Arash, and Niloufar Mehrfard. 2022. The impact of managerial attributes on cash holding and investment efficiency and the mediator role of cash holding. Journal of Islamic Accounting and Business Research 14: 610–28. [Google Scholar] [CrossRef]
  11. Arslan-Ayaydin, Özgür, Chris Florackis, and Aydin Ozkan. 2014. Financial flexibility, corporate investment and performance: Evidence from financial crises. Review of Quantitative Finance and Accounting 42: 211–50. [Google Scholar] [CrossRef]
  12. Arslan-Ayaydin, Özgür, Shimin Chen, Serene Xu Ni, and James Thewissen. 2022. Is cross-listing a panacea for improving earnings quality? The case of H-and B-share firms in China. International Review of Financial Analysis 81: 102113. [Google Scholar] [CrossRef]
  13. Atif, Muhammad, Benjamin Liu, and Allen Huang. 2019. Does board gender diversity affect corporate cash holdings? Journal of Business Finance and Accounting 46: 1003–29. [Google Scholar] [CrossRef]
  14. Batuman, Billur, Yilmaz Yildiz, and Mehmet Baha Karan. 2022. The impact of the global financial crisis on corporate cash holdings: Evidence from Eastern European countries. Borsa Istanbul Review 22: 678–87. [Google Scholar] [CrossRef]
  15. Benlemlih, Mohammed, and Mohammad Bitar. 2018. Corporate social responsibility and investment efficiency. Journal of Business Ethics 148: 647–71. [Google Scholar] [CrossRef]
  16. Bhuiyan, Md Borhan Uddin, and Jill Hooks. 2019. Cash holding and over-investment behavior in firms with problem directors. International Review of Economics & Finance 61: 35–51. [Google Scholar]
  17. Bhutta, Umair Saeed, Adeel Tariq, Muhammad Farrukh, Ali Raza, and Muhammad Khalid Iqbal. 2022. Green bonds for sustainable development: Review of literature on development and impact of green bonds. Technological Forecasting and Social Change 175: 121378. [Google Scholar] [CrossRef]
  18. Biddle, Gary C., Gilles Hilary, and Rodrigo S. Verdi. 2009. How does financial reporting quality relate to investment efficiency? Journal of Accounting and Economics 48: 112–31. [Google Scholar] [CrossRef]
  19. Blanchard, Olivier Jean, Florencio Lopez-de-Silanes, and Andrei Shleifer. 1994. What do firms do with cash windfalls? Journal of Financial Economics 36: 337–60. [Google Scholar] [CrossRef]
  20. Brahmana, Rayenda Khresna, and Maria Kontesa. 2023. Sea surface temperature anomalies and cash holdings: Evidence from fisheries companies. Marine Policy 148: 105452. [Google Scholar] [CrossRef]
  21. Cahyono, Suham, Ardianto Ardianto, and Mohammad Nasih. 2024. Breaking barriers: CEOs STEM educational background and corporate climate change disclosure. International Journal of Accounting and Information Management 32: 651–84. [Google Scholar] [CrossRef]
  22. Cahyono, Suham, Iman Harymawan, and Khairul Anuar Kamarudin. 2023a. The Impacts of Tenure Diversity on Boardroom and Corporate Carbon Emission Performance: Exploring from the Moderating Role of Corporate Innovation. Corporate Social Responsibility and Environmental Management 30: 2507–35. [Google Scholar] [CrossRef]
  23. Cahyono, Suham, Iman Harymawan, Damara Ardelia Kusuma Wardani, and Khairul Anuar Kamarudin. 2023b. Does auditor ethnicity matter in determining audit fees? Some empirical evidence from Indonesia. Accounting Research Journal 36: 384414. [Google Scholar] [CrossRef]
  24. Cambrea, Domenico Rocco, Paolo Tenuta, and Vincenzo Vastola. 2020. Female directors and corporate cash holdings: Monitoring vs. executive roles. Management Decision 58: 295–312. [Google Scholar] [CrossRef]
  25. Chen, Hanwen, Daoguang Yang, Joseph H. Zhang, and Haiyan Zhou. 2020. Internal controls, risk management, and cash holdings. Journal of Corporate Finance 64: 101695. [Google Scholar] [CrossRef]
  26. Chen, Yen-Chang, and Ying-Sing Liu. 2023. Market Efficiency and Stock Investment Loss Aversion Guide During COVID-19 Pandemic Events: The Case for Applying Data Mining. SAGE Open 13: 1–14. [Google Scholar] [CrossRef]
  27. De Vito, Antonio, and Juan-Pedro Gómez. 2020. Estimating the COVID-19 cash crunch: Global evidence and policy. Journal of Accounting and Public Policy 39: 106741. [Google Scholar] [CrossRef]
  28. Deng, Liurui, and Yiwen Zhao. 2022. Investment lag, financially constraints and company value—Evidence from China. Emerging Markets Finance and Trade 58: 3034–47. [Google Scholar] [CrossRef]
  29. Dezsö, Cristian L., and David Gaddis Ross. 2012. Does female representation in top management improve firm performance? A panel data investigation. Strategic Management Journal 33: 1072–89. [Google Scholar] [CrossRef]
  30. Duong, Huu Nhan, Justin Hung Nguyen, My Nguyen, and S. Ghon Rhee. 2020. Navigating through economic policy uncertainty: The role of corporate cash holdings. Journal of Corporate Finance 62: 101607. [Google Scholar] [CrossRef]
  31. Ghoul, Sadok El, Omrane Guedhami, Sattar Mansi, and He (Helen) Wang. 2023. Economic Policy Uncertainty, Institutional Environments, and Corporate Cash Holdings. Research in International Business and Finance 65: 101887. [Google Scholar] [CrossRef]
  32. Goodell, John W., Abhinav Goyal, and Andrew Urquhart. 2021a. Uncertainty of uncertainty and firm cash holdings. Journal of Financial Stability 56: 100922. [Google Scholar] [CrossRef]
  33. Goodell, John W., Satish Kumar, Weng Marc Lim, and Debidutta Pattnaik. 2021b. Artificial intelligence and machine learning in finance: Identifying foundations, themes, and research clusters from bibliometric analysis. Journal of Behavioral and Experimental Finance 32: 100577. [Google Scholar] [CrossRef]
  34. Guizani, Moncef, and Gaafar Abdalkrim. 2022. Board gender diversity, financial decisions and free cash flow: Empirical evidence from Malaysia. Management Research Review 45: 198–216. [Google Scholar] [CrossRef]
  35. Gull, Ammar Ali, Mehdi Nekhili, Haithem Nagati, and Tawhid Chtioui. 2018. Beyond Gender Diversity: How Specific Attributes of Female Directors Affect Earnings Management. British Accounting Review 50: 255–74. [Google Scholar] [CrossRef]
  36. Harris, Chris, and Zhe Li. 2021. Negative operating cash flows and investment inefficiency. Managerial Finance 47: 1408–27. [Google Scholar] [CrossRef]
  37. He, Zhaozhao, and M. Babajide Wintoki. 2016. The cost of innovation: R&D and high cash holdings in U.S. firms. Journal of Corporate Finance 41: 280–303. [Google Scholar] [CrossRef]
  38. Heckman, James J. 1979. Sample selection bias as a specification error. Econometrica 47: 153–61. [Google Scholar] [CrossRef]
  39. Houqe, Muhammad Nurul, Reza Monem, and Tony van Zijl. 2023. Business Strategy, Cash Holdings, and Dividend Payouts. Accounting and Finance 63: 3999–4035. [Google Scholar] [CrossRef]
  40. Huang, Kelly. 2020. Management forecast errors and corporate investment efficiency. Journal of Contemporary Accounting & Economics 16: 100208. [Google Scholar]
  41. Jayakody, Shashitha, David Morelli, and Jaideep Oberoi. 2023. Political Uncertainty, Corruption, and Corporate Cash Holdings. Journal of Corporate Finance 82: 102447. [Google Scholar] [CrossRef]
  42. Jensen, Michael C., and William H. Meckling. 1976. Theory of the firm: Managerial behavior agency costs and ownership structure. Journal of Financial Economics 3: 305–60. [Google Scholar] [CrossRef]
  43. Jiang, Jie, Jack Hou, Cangyu Wang, and HaiYue Liu. 2021. COVID-19 impact on firm investment—Evidence from Chinese publicly listed firms. Journal of Asian Economics 75: 101320. [Google Scholar] [CrossRef] [PubMed]
  44. Jones, Edward, Hao Li, and Oluwagbenga Adamolekun. 2022. Excess Cash Holdings, Stock Returns, and Investment Organicity: Evidence from UK Investment Announcements. Abacus 58: 603–47. [Google Scholar] [CrossRef]
  45. Khan, Safi Ullah. 2022. Financing constraints and firm-level responses to the COVID-19 pandemic: International evidence. Research in International Business and Finance 59: 101545. [Google Scholar] [CrossRef] [PubMed]
  46. Lang, Larry HP, RenéM Stulz, and Ralph A. Walkling. 1991. A test of the free cash flow hypothesis. The case of bidder returns. Journal of Financial Economics 29: 315–35. [Google Scholar] [CrossRef]
  47. Lee, Chien-Chiang, Chih-Wei Wang, and Bui Tien Thinh. 2023. Green development, climate risks, and cash flow: International evidence. Pacific Basin Finance Journal 79: 102021. [Google Scholar] [CrossRef]
  48. Lei, Xin-tu, Qing-yuan Xu, and Cheng-ze Jin. 2022. Nature of property right and the motives for holding cash: Empirical evidence from Chinese listed companies. Managerial and Decision Economics 43: 1482–500. [Google Scholar] [CrossRef]
  49. Li, Chun, Yanling Yang, and Linzhu Ren. 2020. Genetic evolution analysis of 2019 novel coronavirus and coronavirus from other species. Infection, Genetics and Evolution 82: 104285. [Google Scholar] [CrossRef]
  50. Li, Zhiyong, Jonathan Crook, Galina Andreeva, and Ying Tang. 2021. Predicting the risk of financial distress using corporate governance measures. Pacific-Basin Finance Journal 68: 101334. [Google Scholar] [CrossRef]
  51. Liu, Guangqiang, Lingyun Zhang, and Ziqin Xie. 2022a. Environmental taxes and corporate cash holdings: Evidence from China. Pacific Basin Finance Journal 76: 101888. [Google Scholar] [CrossRef]
  52. Liu, Haiyue, Jie Jiang, Rui Xue, Xiaofan Meng, and Shiyang Hu. 2022b. Corporate environmental governance scheme and investment efficiency over the course of COVID-19. Finance Research Letters 47: 102726. [Google Scholar] [CrossRef] [PubMed]
  53. Loukil, Nadia, and Ouidad Yousfi. 2016. Does gender diversity on corporate boards increase risk-taking? Canadian Journal of Administrative Sciences 81: 66–81. [Google Scholar] [CrossRef]
  54. Matejić, Tijana, Snežana Knežević, Vesna Bogojević Arsić, Tijana Obradović, Stefan Milojević, Miljan Adamović, Aleksandra Mitrović, Marko Milašinović, Dragoljub Simonović, Goran Milošević, and et al. 2022. Assessing the Impact of the COVID-19 Crisis on Hotel Industry Bankruptcy Risk through Novel Forecasting Models. Sustainability 14: 4680. [Google Scholar] [CrossRef]
  55. Mnif, Yosra, and Imen Cherif. 2020. Female Board Directorship and Earnings Management. Pacific Accounting Review 33: 114–41. [Google Scholar] [CrossRef]
  56. Moin, Abdul, Yilmaz Guney, and Izidin El Kalak. 2020. The effects of ownership structure, sub-optimal cash holdings and investment inefficiency on dividend policy: Evidence from Indonesia. Review of Quantitative Finance and Accounting 55: 857–900. [Google Scholar] [CrossRef]
  57. Myers, Stewart C., and Nicholas S. Majluf. 1984. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics 13: 187–221. [Google Scholar] [CrossRef]
  58. Ningsih, Sri, Khusnul Prasetyo, Novi Puspitasari, and Suham Cahyono. 2023. Earnings Management and Sustainability Reporting Disclosure. Risks 11: 137. [Google Scholar]
  59. Ozkan, Aydin. 2002. The determinants of corporate debt maturity: Evidence from UK firms. Applied Financial Economics 12: 19–24. [Google Scholar] [CrossRef]
  60. Phan, Hieu V., Nam H. Nguyen, Hien T. Nguyen, and Shantaram Hegde. 2019. Policy uncertainty and firm cash holdings. Journal of Business Research 95: 71–82. [Google Scholar] [CrossRef]
  61. Qu, Xin, Majella Percy, Fang Hu, and Jenny Stewart. 2022. Can CEO equity-based compensation limit investment-related agency problems? Accounting & Finance 62: 2579–614. [Google Scholar]
  62. Quah, Heidi, Janto Haman, and Dharmendra Naidu. 2021. The effect of stock liquidity on investment efficiency under financing constraints and asymmetric information: Evidence from the United States. Accounting & Finance 61: 2109–50. [Google Scholar]
  63. Rocca, Maurizio La, Tiziana La Rocca, Raffaele Staglianò, Pino Vecellio, and Fabiola Montalto. 2019. Gender diversity, cash holdings and the role of the institutional environment: Empirical evidence in Europe. Applied Economics 51: 3137–52. [Google Scholar] [CrossRef]
  64. Roychowdhury, Sugata, Nemit Shroff, and Rodrigo S. Verdi. 2019. The effects of financial reporting and disclosure on corporate investment: A review. Journal of Accounting and Economics 68: 101246. [Google Scholar] [CrossRef]
  65. Sarang, Aitzaz Ahsan Alias, Nicolas Aubert, and Xavier Hollandts. 2021. Board Gender Diversity and Corporate Cash Holdings. Finance 42: 7–49. [Google Scholar] [CrossRef]
  66. Sheu, Her-Jiun, and Shiou-Ying Lee. 2012. Excess cash holdings and investment: The moderating roles of financial constraints and managerial entrenchment. Accounting & Finance 52: 287–310. [Google Scholar]
  67. Sikveland, Marius, Jinghua Xie, and Dengjun Zhang. 2022. Determinants of capital structure in the hospitality industry: Impact of clustering and seasonality on debt and liquidity. International Journal of Hospitality Management 102: 103172. [Google Scholar] [CrossRef]
  68. Soesanto, Stefan, and Hendra Wijaya. 2022. The Effect of Readability of annual reports and value relevance of financial information on agency costs with analyst coverage as moderating variable. Jurnal Akuntansi dan Keuangan 24: 46–56. [Google Scholar] [CrossRef]
  69. Sun, Qian, Kenneth Yung, and Hamid Rahman. 2012. Earnings quality and corporate cash holdings. Accounting & Finance 52: 543–71. [Google Scholar]
  70. Tang, Dragon Yongjun, and Yupu Zhang. 2020. Do shareholders benefit from green bonds? Journal of Corporate Finance 61: 101427. [Google Scholar] [CrossRef]
  71. Trinh, Nga Thu, Thanh Pham Thien Nguyen, and Son Hong Nghiem. 2022. Economic policy uncertainty and other determinants of corporate cash holdings of Australian energy companies. International Journal of Energy Sector Management 16: 1192–213. [Google Scholar] [CrossRef]
  72. Wan Ismail, Wan Adibah, Khairul Anuar Kamarudin, Akmalia Mohamad Ariff, and Wan Nordin Wan-Hussin. 2023. Women on board, strength of auditing and reporting standards and analysts’ forecasts accuracy: International evidence. Journal of Applied Accounting Research 24: 380–402. [Google Scholar] [CrossRef]
  73. Wu, Yizhong, Chien-Chiang Lee, Chi-Chuan Lee, and Diyun Peng. 2022. Geographic proximity and corporate investment efficiency: Evidence from high-speed rail construction in China. Journal of Banking & Finance 140: 106510. [Google Scholar]
  74. Yang, Xingquan, Liang Han, Wanli Li, Xingqiang Yin, and Lin Tian. 2017. Monetary policy, cash holding and corporate investment: Evidence from China. China Economic Review 46: 110–22. [Google Scholar] [CrossRef]
  75. Yip, Rita W.Y., Danqing Young, Beibei Liu, and Zhichen Wang. 2022. Acquiring firms’ transparency and their returns around M&A announcements: Evidence from China. Journal of International Accounting, Auditing and Taxation 48: 100487. [Google Scholar]
  76. Zheng, Michael. 2022. Is cash the panacea of the COVID-19 pandemic: Evidence from corporate performance. Finance Research Letters 45: 102151. [Google Scholar] [CrossRef]
  77. Zou, Ying, Zhuoming Zhong, and Jia Luo. 2021. Ethnic diversity, investment efficiency, mediating roles of trust and agency cost. Economic Analysis and Policy 69: 410–20. [Google Scholar] [CrossRef]
Table 1. Samples distribution according to overinvestment and underinvestment.
Table 1. Samples distribution according to overinvestment and underinvestment.
SICUnderinvestmentOverinvestmentTotal
N%N%N%
(SIC 0) Agriculture,
Forestry, and Fisheries		10060%6840%168100%
(SIC 1) Mining22858%16642%394100%
(SIC 2) Construction Industries35250%35850%710100%
(SIC 3) Manufacturing30062%18138%481100%
(SIC 4) Transportation,
Communications, and Utilities		29468%13832%432100%
(SIC 5) Wholesale and Retail Trade15154%12846%279100%
(SIC 7) Service Industries6227%16673%228100%
(SIC 8) Health, Legal, and Educational Services and Consulting2172%828%29100%
Total150855%1.21345%2721100%
Table 2. Variable definition and operationalization.
Table 2. Variable definition and operationalization.
VariableDefinitionSource
absminINVEFFThe residual value of Huang (2020)’s regression model, which is an absolute value, is multiplied by 1. This variable shows the value of investment efficiencyAnnual Report
Cash HoldingCash and cash equivalents divided by total assetsAnnual Report
FEMDIRDummy variables, which take a value of 1 if in a boardroom that serves at least one female director, and 0 otherwiseAnnual Report
BSIZENatural logarithm from the total number of the board in the firmsAnnual Report
INDCOMSIZEThe number of independent commissioners is divided by the total commissionerAnnual Report
lnAGEHow long the firm has been establishedAnnual Report
FIRMSIZENatural logarithm of total assetsAnnual Report
ROEProfit before tax divided by total equityORBIS
MTBMarket-to-book ratioORBIS
PPEPlant, property, and the assets divided by total assetsORBIS
LEVTotal liability divided by total assets ORBIS
Table 3. Descriptive statistics.
Table 3. Descriptive statistics.
MeanMedianMinimumMaximum
absminINVEFF−0.109−0.013−2.4880.000
CASH HOLDING0.1040.0660.0000.963
FEMDIR0.5750.0000.0001.000
COV0.2570.0000.0001.000
BSIZE8.8758.0004.00021.000
INDCOMSIZE0.3820.3330.0003.000
lnAGE3.5313.5841.0994.796
FIRMSIZE27.82128.35214.99932.261
ROE0.0400.052−1.2521.354
MTB2.2871.144−1.68528.113
PPE0.3810.3490.0000.932
LEV0.5300.4920.0522.661
Table 4. Pearson correlation.
Table 4. Pearson correlation.
[1][2][3][4][5][6][7]
[1] absminINVEFF1.000
[2] CASH HOLDING−0.033 *1.000
[3] FEMDIR0.234 *0.246 **
[4] COV0.077 ***0.324 **−0.0131.000
[5] BSIZE−0.080 ***0.075 ***−0.194 ***1.000
[6] INDCOMSIZE0.0270.452 *−0.0150.121 ***−0.0101.000
[7] lnAGE−0.143 ***0.531 ***0.019−0.186 ***0.296 ***−0.050 ***1.000
[8] FIRMSIZE−0.095 ***0.753 **−0.001−0.575 ***0.501 ***−0.034 *0.224 ***
[9] ROE−0.071 ***0.432 ***0.054 ***−0.060 ***0.039 **−0.0260.054 ***
[10] MTB−0.273 ***0.753 ***0.032 *0.0010.035 *−0.033 *−0.026
[11] PPE−0.0300.423 **−0.338 ***−0.0150.048 **0.0020.035 *
[12] LEV0.0060.512 *0.0040.029−0.0150.039 **−0.005
[8][9][10][11][12]
[8] FIRMSIZE1.000
[9] ROE0.089 ***1.000
[10] MTB−0.020−0.132 ***1.000
[11] PPE0.068 ***−0.037 **0.0031.000
[12] LEV−0.073 ***−0.000−0.011−0.0281.000
Significance is at * p < 0.1, ** p < 0.05, and *** p < 0.01.
Table 5. Ordinary linear regression.
Table 5. Ordinary linear regression.
(1)(2)(3)(4)
absminINVEFFabsminINVEFFabsminINVEFFabsminINVEFF
CASH HOLDINGxCOV19 −0.202 **
(−2.06)
CASH HOLDINGxFEMDIR 0.432 ***
(3.21)
CASH HOLDINGSxFEMDIRxCOV19 0.531 **
(2.31)
CASH HOLDING−0.120 **−0.178 **−0.124 **−0.162 **
(−1.96)(−2.25)(−2.14)(−2.25)
FEMDIR0.234 ***0.321 **0.121 **0.421 **
(3.44)(2.21)(2.43)(2.33)
COV19−0.026−0.047−0.041−0.423
(−0.81)(−1.45)(−1.32)(−1.51)
BSIZE−0.000−0.000−0.000−0.000
(−0.15)(−0.10)(−0.12)(−0.54)
INDCOMSIZE0.0340.0360.0230.036
(0.80)(0.84)(0.92)(0.94)
lnAGE−0.036 ***−0.026 ***−0.126 ***−0.056 ***
(−2.87)(−2.84)(−2.92)(−2.71)
FIRMSIZE−0.003−0.003−0.323−0.831
(−0.83)(−0.82)(−0.92)(−0.93)
ROE−0.102 ***−0.103 ***−0.213 ***−0.422 ***
(−4.04)(−4.11)(−4.32)(−4.91)
MTB−0.022 ***−0.022 ***−0.122 ***−0.422 ***
(−5.26)(−5.25)(−5.92)(−5.54)
PPE0.0220.0230.2320.023
(1.17)(1.20)(1.32)(1.20)
LEV−0.000 ***−0.000 ***−0.000 ***−0.000 ***
(−3.39)(−3.51)(−3.83)(−3.51)
_cons0.266 **0.265 **0.235 **0.265 **
(2.24)(2.24)(2.54)(2.24)
Industry DummiesIncludedIncludedIncludedIncluded
Year DummiesIncludedIncludedIncludedIncluded
r20.3070.3080.3090.321
N2721272127212721
t statistics in parentheses; * p < 0.1, ** p < 0.05, *** p < 0.01.
Table 6. Coarsened Exact Matching.
Table 6. Coarsened Exact Matching.
Panel A
Cash Holdings = 0Cash Holdings = 1
All1.4431.452
Matched1.3351.319
Unmatched108133
(1)(2)(3)(4)
absminINVEFFabsminINVEFFabsminINVEFFabsminINVEFF
CASH HOLDINGxCOV19 0.230 **
(2.47)
CASH HOLDINGSxFEMDIR 0.345 ***
(3.22)
CASH HOLDINGSxCOV19xFEMDIR 0.521 ***
(3.21)
CASH HOLDING−0.135 **−0.164 **−0.142 **−0.144 **
(−1.97)(−2.15)(−2.12)(−2.45)
FEMDIR−0.232 ***−0.244 ***−0.261 **−0.362 ***
(−2.99)(−2.85)(−2.42)(−2.55)
COV19−0.060 ***−0.084 ***−0.062 ***−0.034 ***
(−2.69)(−3.49)(−2.79)(−3.79)
BSIZE0.0010.0010.0020.033
(1.12)(1.11)(1.13)(1.24)
INDCOMSIZE0.0350.0360.0380.037
(1.05)(1.08)(1.15)(1.23)
FIRMSIZE−0.009 ***−0.009 ***−0.019 ***−0.019 ***
(−3.15)(−3.26)(−3.25)(−3.56)
LnAGE−0.001 ***−0.001 ***−0.031 ***−0.052 ***
(−2.92)(−2.92)(−2.52)(−2.92)
ROE−0.064 ***−0.067 ***−0.094 ***−0.027 ***
(−3.32)(−3.44)(−3.42)(−3.74)
MTB−0.019 ***−0.019 ***−0.029 ***−0.059 ***
(−4.32)(−4.31)(−4.62)(−4.51)
PPE0.045 ***0.045 ***0.045 ***0.345 ***
(2.62)(2.63)(2.65)(2.81)
LEV−0.005−0.005−0.045−0.025
(−0.54)(−0.52)(−0.34)(−0.42)
_cons0.305 ***0.314 ***0.335 ***0.324 ***
(3.75)(3.89)(3.35)(3.39)
Industry DummiesIncludedIncludedIncludedIncluded
Year DummiesIncludedIncludedIncludedIncluded
r20.2850.2860.2920.296
N2549254925492549
t statistics in parentheses. * p < 0.1, ** p < 0.05, *** p < 0.01.
Table 7. Propensity Score Matching.
Table 7. Propensity Score Matching.
absminINVEFF = 1absminINVEFF = 0Diff.t-Value
CASH HOLDINGxCOV192.7372.3160.4210.975
CASH HOLDINGSxFEMDIR9.2619.0300.2320.358
CASH HOLDINGSxCOV19xFEMDIR32.52633.000−0.474−0.067
CASH HOLDING9.84210.211−0.368−0.473
COV190.7890.789−0.000−0.000
BSIZE69.94766.6323.3160.475
INDCOMSIZE0.0000.001−0.001−0.001
FIRMSIZE20.62320.709−0.086−0.120
LnAGE0.4060.496−0.090−1.463
ROE5.2662.3112.9551.020
MTB0.2110.263−0.053−0.372
PPE0.2350.1870.0470.869
LEV0.3210.380−0.059−0.950
(1)(2)(3)(4)
absminINVEFFabsminINVEFFabsminINVEFFabsminINVEFF
CASH HOLDINGxCOV19 0.332 **
(2.57)
CASH HOLDINGSxFEMDIR 0.421 ***
(3.42)
CASH HOLDINGSxCOV19xFEMDIR 0.523 ***
(3.42)
CASH HOLDING−0.132 **−0.264 **−0.342 **−0.144 **
(−1.99)(−2.35)(−2.32)(−2.42)
FEMDIR−0.232 *−0.464 ***−0.842 **−0.644 **
(−1.89)(−2.45)(−2.22)(−2.92)
COV19−0.062 ***−0.124 ***−0.042 ***−0.036 ***
(−2.63)(−3.79)(−2.49)(−3.74)
BSIZE0.0020.0310.0320.035
(1.14)(1.21)(1.33)(1.23)
INDCOMSIZE0.0250.0560.0580.035
(1.35)(1.28)(1.45)(1.24)
FIRMSIZE−0.109 ***−0.409 ***−0.319 ***−0.039 ***
(−3.25)(−3.56)(−3.55)(−3.55)
LnAGE−0.031 ***−0.031 ***−0.031 ***−0.052 ***
(−2.62)(−2.32)(−2.32)(−2.93)
ROE−0.034 ***−0.037 ***−0.064 ***−0.027 ***
(−3.22)(−3.24)(−3.42)(−3.75)
MTB−0.039 ***−0.059 ***−0.089 ***−0.054 ***
(−4.42)(−4.81)(−4.22)(−4.53)
PPE0.025 ***0.035 ***0.035 ***0.343 ***
(2.82)(2.93)(2.55)(2.89)
LEV−0.105−0.205−0.345−0.027
(−0.44)(−0.72)(−0.34)(−0.44)
_cons0.345 ***0.344 ***0.345 ***0.323 ***
(3.25)(3.93)(3.55)(3.35)
Industry DummiesIncludedIncludedIncludedIncluded
Year DummiesIncludedIncludedIncludedIncluded
r20.2920.2860.2920.296
N2149214921492149
t statistics in parentheses. * p < 0.1, ** p < 0.05, *** p < 0.01.
Table 8. Heckman (1979) Two-Stage Least Square.
Table 8. Heckman (1979) Two-Stage Least Square.
1st Stage2nd Stage
(1)(2)(3)
absminINVEFFabsminINVEFFabsminINVEFF
MeanCASH HOLDINGS0.330 ***
(6.55)
CASH HOLDINGxCOV19 0.431 **
(2.67)
CASH HOLDINGSxFEMDIR 0.474 ***
(3.83)
CASH HOLDINGSxCOV19xFEMDIR 0.561 ***
(3.49)
CASH HOLDING0.065 **−0.264 **−0.342 **−0.144 **
(2.15)(−2.35)(−2.32)(−2.42)
FEMDIR−0.536 ***−0.634 **−0.542 ***−0.444 ***
(−3.27)(−2.85)(−3.32)(−2.82)
COV190.003−0.124 ***−0.042 ***−0.036 ***
(0.83)(−3.79)(−2.49)(−3.74)
BSIZE−0.721 ***0.0310.0320.035
(−3.52)(1.21)(1.33)(1.23)
INDCOMSIZE0.087 **0.0560.0580.035
(2.08)(1.28)(1.45)(1.24)
FIRMSIZE1.087 ***−0.409 ***−0.319 ***−0.039 ***
(3.18)(−3.56)(−3.55)(−3.55)
LnAGE−0.046 ***−0.031 ***−0.031 ***−0.052 ***
(−5.05)(−2.32)(−2.32)(−2.93)
ROE−0.345−0.037 ***−0.064 ***−0.027 ***
(−1.44)(−3.24)(−3.42)(−3.75)
MTB0.352−0.059 ***−0.089 ***−0.054 ***
(0.65)(−4.81)(−4.22)(−4.53)
PPE0.0880.035 ***0.035 ***0.343 ***
(0.26)(2.93)(2.55)(2.89)
LEV−0.377−0.205−0.345−0.027
(−0.35)(−0.72)(−0.34)(−0.44)
MILLS −0.415−0.925−0.327
(−0.52)(−0.44)(−0.92)
_cons0.011 ***0.344 ***0.345 ***0.323 ***
(3.88)(3.93)(3.55)(3.35)
Industry DummiesIncludedIncludedIncludedIncluded
Year DummiesIncludedIncludedIncludedIncluded
r20.2980.2860.2920.296
N2149214921492149
t statistics in parentheses. * p < 0.1, ** p < 0.05, *** p < 0.01.
Disclaimer/Publisher’s Note: The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of MDPI and/or the editor(s). MDPI and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content.

Share and Cite

MDPI and ACS Style

Ardianto, A.; Sulaiman, N.A. Corporate Cash Holdings and Investment Efficiency: Do Women Directors and Financial Crisis Matter? J. Risk Financial Manag. 2024, 17, 311. https://doi.org/10.3390/jrfm17070311

AMA Style

Ardianto A, Sulaiman NA. Corporate Cash Holdings and Investment Efficiency: Do Women Directors and Financial Crisis Matter? Journal of Risk and Financial Management. 2024; 17(7):311. https://doi.org/10.3390/jrfm17070311

Chicago/Turabian Style

Ardianto, Ardianto, and Noor Adwa Sulaiman. 2024. "Corporate Cash Holdings and Investment Efficiency: Do Women Directors and Financial Crisis Matter?" Journal of Risk and Financial Management 17, no. 7: 311. https://doi.org/10.3390/jrfm17070311

Article Metrics

Back to TopTop