Corporate ESG performance, Shariah-compliant status and cash holdings

Akmalia Mohamad Ariff · Norakma Abd Majid · Khairul Anuar Kamarudin · Siti Nurain Muhmad

30 citations0/0 files storedJournal of Islamic accounting and business research

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Islamic Finance and Banking Studies Corporate Finance and Governance Corporate Social Responsibility Reporting

Abstract

Purpose This study aims to examine the association between environmental, social and governance (ESG) performance and cash holdings, as well as whether this association is moderated by Shariah-compliant status. The aim was to test the joint effect of two ethical precepts, namely, the ESG and Shariah-compliant status, in explaining variations in cash holdings. Design/methodology/approach A sample set that consisted of 9,244 firm-year observations from 25 countries from 2016 to 2020 was analysed using regression analysis. Firm-level data were sourced from Thomson Reuters and Refinitiv databases, while country-level data were derived from the World Bank and Hofstede Insights websites. Findings Firms with greater ESG performances were found to have higher cash holdings. The positive association between ESG performance and cash holdings was greater for Shariah-compliant firms compared to non-Shariah-compliant firms. In support of the stakeholder theory, the evidence indicated that Shariah-compliant firms with higher ESG commitments also have higher cash holdings as part of their corporate strategy. Practical implications These findings provided further comprehension to investors that ESG practices among Shariah-compliant firms are essential information during investment decision-making processes. Social implications These findings highlighted ethical corporate practices through two frameworks, namely, ESG commitment and Shariah compliance; hence, contributing towards strategies to reach the Sustainable Development Goal 16 of promoting just, peaceful and inclusive societies. Originality/value This study has focused on the motives for cash holdings by considering the ethical precepts embodying ESG and Shariah compliance to uphold the positive impact of high cash reserves.

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References

2001Corporate Social Responsibility: A Theory of the Firm Perspective 2013Corporate social responsibility and access to finance 2017Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis 2009Corporate responsibility and financial performance: the role of intangible resources 2018Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence 1995Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics 2007Corporate governance and firm cash holdings in the US 2003Corporate cash holdings: An empirical investigation of UK companies

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