Corporate ESG performance, Shariah-compliant status and cash holdings
Journal of Islamic Accounting and Business Research
ISSN: 1759-0817
Article publication date: 20 April 2023
Issue publication date: 5 March 2024
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.
Keywords
Acknowledgements
The authors would like to convey appreciation for the feedback received on the earlier draft of this paper during the MyAA Conference 2021, especially to the discussants in the presentation session. They would like to thank Universiti Malaysia Terengganu for its financial support for this research work.
Citation
Mohamad Ariff, A., Abd Majid, N., Kamarudin, K.A., Zainul Abidin, A.F. and Muhmad, S.N. (2024), "Corporate ESG performance, Shariah-compliant status and cash holdings", Journal of Islamic Accounting and Business Research, Vol. 15 No. 3, pp. 534-552. https://doi.org/10.1108/JIABR-08-2022-0217
Publisher
:Emerald Publishing Limited
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