Does accounting quality predict corporate cash holdings? Online publication date: Thu, 25-Aug-2022
by Rajesh Pathak; Ranajee Ranajee; Ranjan Das Gupta
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 12, No. 4, 2022
Abstract: This study empirically examines the role of better accounting quality as a substitute for corporate cash holdings. It uses data for Indian firms during 2006-2016 and employs a host of panel models to test the studied relationship amid a set of idiosyncratic controls and robustness tests. It reports that firms with high discretionary accruals hold high levels of cash, implying poor earnings quality leading to cash accumulation. Results are highly consistent for alternative measures of accounting quality and cash holdings, and are robust to controls of cash holdings antecedents and endogeneity issues. Furthermore, analysis of group-affiliated firms reveals that while group affiliates suffer from poor earnings quality compared to non-affiliates, this does not have bearing on their cash holdings. The results imply that managers of Indian firms should focus on maintaining better accounting quality to alleviate the need to accumulate cash as a means of avoiding fundraising constraints when needed.
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the Afro-Asian J. of Finance and Accounting (AAJFA):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email subs@inderscience.com
Our Blog 
Follow us on Twitter 
Visit us on Facebook