The Role of Corporate Governance in Shaping Cash Holding Practices: Insights from Saudi Arabia as an Emerging High-Income Economy

Abstract

Abstract The study aims to investigate how governance mechanisms affect the cash holding policies of firms in Saudi Arabia that are listed on the Saudi Stock Exchange. The research focused on various governance elements like board size, the ratio of independent members, board gender diversity, external audit quality, and audit committee independence. Additionally, it considered the risk management committee, which is a discretionary committee in the Saudi governance framework, and it used several financial control variables, including return on assets, leverage, firm size, and market, to, book value ratio. Descriptive statistics, correlation analysis, static regression models, and dynamic analysis using GMM were the methods of data examination employed in the study. The research findings indicated that governance mechanisms and firm characteristics are crucial factors influencing cash holding policies. The results pointed out that the practical effectiveness of governance, especially the value added by risk management committees, matters more than just their mere formal existence. Moreover, the study communicated a set of suggestions to reinforce committee independence, increase board diversity, and follow conservative cash policies. Furthermore, it gave potential research paths for studies that could focus on qualitative and cultural aspects affecting cash holding.