**1. Introduction**

To increase value, firms should not keep non-productive assets and should finance their investments with the cheapest sources of funds. External sources, if available, are thought to be more expensive than internal ones due to asymmetric information, transaction costs, tax benefits, and the cost of financial distress. If capital markets were perfect, this argument would be irrelevant, as there would be no uncertainty, information asymmetry, transaction costs, nor financial constraints. Firms would lend and borrow at the same interest rate, and the capital market would reflect all available information. If this were the case, firms would have no incentive to finance nor to invest in the short term; hence, working capital accounts would be unnecessary.

In the real world, however, issues of information asymmetry and transaction costs must be addressed. While firms have a variety of options, Scherr [1] claims that those including investment and financing through working capital accounts often provide a significant advantage. He argues that when a company is faced with uncertainty about its predicted future cash flows, it will incur significant costs if it has insufficient financial reserves to cover expenses. To deal with this unpredictability and the expenses it may entail, various techniques could be implemented, including working capital investment or financing, such as maintaining a reserve of short-term cash balances above estimated needs. Therefore, management of cash holdings and determination of the level of cash to be held is vital for firms' financial stability and success.

According to the Keynesian Liquidity Preference Theory [2], corporate economic activity requires money or liquidity. Keynes described the three motives in the theory. First, the transactions motive, which is driven by corporate decisions to favor liquidity for routine

**Citation:** Alkhataybeh, A.; AlSmadi, S.A.; Shakhatreh, M.Z.; Khataybeh, M.A. Government Ownership and Corporate Cash Holdings: Empirical Evidence from the Amman Stock Exchange. *Sustainability* **2022**, *14*, 11168. https://doi.org/10.3390/su141811168

Academic Editors: Akrum Helfaya and Ahmed Aboud

Received: 2 August 2022 Accepted: 4 September 2022 Published: 6 September 2022

**Copyright:** © 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

business transactions or daily expenses. Instead of struggling or borrowing, businesses prefer to have liquidity to meet their short-term obligations. The second is the speculative motive, which describes how companies intend to profit speculatively from fluctuations in interest rates. It is believed that businesses may require more liquidity when interest rates are low because they anticipate an increase in rates in the future and, as a result, they retain cash. Finally, the precautionary demand motive, which represents the need to cover unforeseen investment possibilities, contingencies, or unexpected expenditures.

Between the opportunity costs of lost investments when holding cash (i.e., a nonearning asset) and the benefits of reducing the transaction costs of external funds and being able to finance projects when necessary, firms vacillate with regard to the levels of cash being held. To make matters more complicated, firms also need to deal with the expected agency problems associated with the high levels of cash, because cash is vulnerable to exploitation by managers [3]. Consequently, examining the factors that affect the level of cash holdings and how cash holdings are used is inevitable.

In Jordan, cash holdings have been examined extensively. A stream of research has examined the determinants of the levels of cash held by Jordanian firms; for example, working capital management [4], directors' ownership, organizational ownership and foreign ownership [5], and disclosure quality [6]. Another stream has examined the effect of cash holdings on firm value [7] and profitability [8]. However, the effect of government ownership on the level of cash holdings has yet to be examined. Therefore, this research intends to fill this gap.

Government ownership is expected to affect cash holdings in either of two ways. On the one hand, it can provide a type of guarantee to the investing firm, especially if the government, through this investment, has social or political goals, such as reducing the level of unemployment or helping certain industries to thrive. Therefore, the government will not allow such firms to fail, by providing capital directly or by serving as a guarantor to lending banks or by relaxing taxes. Therefore, firms are less likely to face distress [9] and will have a lower risk of default, lower capital costs, and hence lower cash holdings. On the other hand, government ownership might provide protection to firm management, resulting in moral hazards and managers who are not afraid of losing their job. In such a case, managers, and government (who might have other priorities), will cause the firm's value to fall and the risk of default to increase, leading to higher capital costs and cash holdings. Moreover, in this scenario, managers are also expected to hold higher levels of cash, because it is less costly to exploit and subject to less market discipline. Consequently, we expect that government ownership will affect the level of cash holdings of Jordanian firms.

Government ownership is important for several reasons. First, it is considered common in Middle Eastern countries [10]. Second, due to its power, the government is expected to exercise higher intervention [11], which will affect the attitudes of top management. Third, government owners are the only ones who are not solely concerned with profit maximization [12,13]; rather, they have social and political priorities that will affect decisions taken, which may create conflicts of interest with other owners. However, there is limited research on the effect of government ownership on the level of cash holdings [14]. Hence, here we examine the effect of government ownership on the level of cash holdings in Jordan.

The rationale for researching the Jordanian context is as follows. First, for many market participants, it is critical to provide evidence on how government ownership affects company cash holdings in the Jordanian market, namely the Amman Stock Exchange (ASE). With more than 280 companies listed since its founding in 1999, the ASE is regarded as a relatively high liquid market, with a market capitalization of roughly USD 26 billion, offering diversified choices for portfolio investors. The results of this research provide important insights into the effectiveness of government ownership in monitoring management and agency problems. Therefore, the economic significance of this market drives the importance of this research, which helps improve informational efficiency and sheds light on the factors that investors should consider before making investment decisions on the ASE.

Second, the Jordanian government has been attempting to globalize the ASE to encourage foreign inflow. In a bid to increase the efficiency of the market, since the late nineties the government has surrendered a large share of its equity ownership to the private sector. Firms owned by the government used to suffer from administrative interference, little autonomy, insufficient investment resources, and poorly constructed incentive systems; therefore, privatization in Jordan was aimed at improving firm efficiency and improving operational performance. However, the government still has ownership interests and exercises delegated powers in more than 9% of the listed firms on the Amman Stock Exchange [15]; such firms have received limited attention in the research on cash holdings. Furthermore, the Jordanian government is currently studying the privatization of certain other firms [16]; this research could be of great importance for the government in evaluating privatizing the remaining government ownership.

Consistent with the view that government ownership leads to ineffective monitoring and agency problems, we found that it is positively related to corporate cash holdings. The study contributes to the literature in several ways. First, we provide detailed analysis of the effect of government ownership on the levels of cash held. This issue, despite the dramatic recent increase in government intervention [17], has been little examined in the literature [14] for both developed and developing countries. Second, by understanding the effect of government investment on firms' cash holdings, we provide implications for various market players in Jordan. Third, we extend our analysis to ascertain why firms hold more cash in the case of government ownership and use our empirical evidence to gauge the theoretical explanation of Jordanian firms' attitude to cash holdings. Fourth, if the government of Jordan is to continue to own shares in those firms, it is advised to act as a diligent and informed owner, but at arm's length from management. Moreover, the government is advised to rethink its ownership policy; the policy should set forth the purposes of business ownership and the intended expectations of the owned firms by the government. It should also specify how it will fulfil its rights as owner.

The remainder of the study is organized as follows. In Sections 2 and 3, we present the theoretical background and a review of the literature, respectively, and develop our hypothesis. Section 4 presents the methodology employed to address the research question, while in Section 5, we provide the descriptive statistics and discuss the results. In Section 6, we discuss why government ownership is associated with higher levels of cash, and finally Section 7 presents the conclusion.
