Determinants of Cash Holding of Shariah and Non-Shariah-Compliant Firms at Indonesia Stock Exchange

Abstract

The purpose of this study is to analyze what factors determine the cash holding of Shariah and non-Shariah-compliant firms of the manufacturing sector on the Indonesia Stock Exchange with the variables of leverage, profitability, capital expenditure, net working capital, size, dividend payment, growth opportunity, operation cash flow, cash flow volatility as the determinant of cash holding, as well firm's age as the control variable. This study uses secondary data from the financial statements of manufacturers on the Indonesia Stock Exchange in 2016-2020. To collect data, this study uses a purposive sampling method and obtained 41 firms (31 Shariah-compliant firms and 11 non-Shariah-compliant firms). Data analysis use multiple regression with the Eviews10 program. The result shows that leverage, profitability, capital expenditure, net working capital, size, dividend payment, growth opportunity, operation cash flow, cash flow volatility, and firm's age have a significant relationship on the cash holding of Shariah-compliant firms. For non-Shariah-compliant firms, relevant determinants of cash holding are leverage, profitability, capital expenditure, net working capital, size, operation cash flow, and firm's age. These findings could be a consideration for firms and investors to optimize cash holding to gain profits and avoid financial distress.