Do political connections shape the nexus between board attributes and corporate cash holdings?

Abstract

Purpose Motivated by the agency theory, this paper primarily intends to empirically investigate the impact of board attributes on corporate cash holdings and how the mentioned nexus is moderated by the level of corporate political connections in a developing country, namely, Palestine during the period of 2011–2018. Design/methodology/approach Multiple regression analysis on a panel data was employed. Moreover, the authors applied three different approaches of static panel data “pooled OLS, fixed effect and random effect”. Fixed-effects estimator was selected as the optimal and most appropriate model. In addition, to control for the potential endogeneity problem and to profoundly analyze the study data, the authors perform the one-step system generalized method of moment estimator. Findings The results of this study provide support for the agency theory ideology, which considers that sturdy and well-established corporate governance (CG) paradigms minify the magnitude of cash held by companies. Furthermore, the findings distinctly unveil that the impact of board attributes is more positive under a high level of political connections. Research limitations/implications This study was solely restricted to one institutional context “Palestine”; therefore, the results reflect the attributes of the Palestinian business environment. In this vein, it is possible to generate different findings in other countries, particularly in developed markets. Practical implications The findings of this study can draw responsible parties, top management and policymakers' attention in developing countries to introduce and contextualize new mechanisms that can lead to better managing of corporate cash holdings. Originality/value Empirical evidence on the moderating role of political connection on the effect of board attributes on corporate cash holdings something that was predominantly neglected by the earlier research and has not yet examined by ancestors. Hence, to protrude nuanced understanding of this novel idea, this study minutely bridges this research gap and contributes practically and theoretically to the existing CG–cash holdings literature.

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