EFFECT OF CORRUPTION ON CASH HOLDING: A

CASE STUDY OF PAKISTAN AND CHINA

BY
MIAN JAN
A thesis submitted to The University of Agriculture, Peshawar in partial fulfillment of
the requirements for the degree of

MASTER OF SCIENCE (MS) IN MANAGEMENT SCIENCES IN

(FINANCE)

INSTITUTE OF BUSINESS AND MANAGEMENT SCIENCES

FACULTY OF MANAGEMENT AND COMPUTER SCIENCES
THE UNIVERSITY OF AGRICULTURE,
PESHAWAR, PAKISTAN
APRIL, 2023
 EFFECT OF CORRUPTION ON CASH HOLDING: A
CASE STUDY OF PAKISTAN AND CHINA

BY
MIAN JAN
A thesis submitted to The University of Agriculture, Peshawar in partial fulfillment of
the requirements for the degree of

MASTER OF SCIENCE (MS) IN MANAGEMENT SCIENCES IN

(FINANCE)

Approved By:

___________________
Dr. Idrees Ali Shah Chairman Supervisory Committee

___________________ Member
Dr. Sabeeh Ullah

___________________ Member
Dr. Shah Hassan

___________________ Director IBMS and Convener

Dr. Sabeeh Ullah Board of Studies

__________________ Dean, Faculty of Management

Prof. Dr. Dawood Jan and Computer Sciences (FMCS)

________________
Prof. Dr. Shahid Sattar Director Advanced Studies and Research

INSTITUTE OF BUSINESS AND MANAGEMENT SCIENCES

FACULTY OF MANAGEMENT AND COMPUTER SCIENCES
THE UNIVERSITY OF AGRICULTURE,
PESHAWAR, PAKISTAN
APRIL, 2023
 TABLE OF CONTENTS
Chapter No. Title Page No.

LIST OF TABLES................................................................................................i

ABSTRACT..........................................................................................................ii

I. INTRODUCTION.........................................................................................1

1.1. Background of the Study.........................................................................1

1.2 Objectives of the Study............................................................................3

1.3 Problem Statement...................................................................................3

1.4 Significance of the Study.........................................................................4

1.5 Hypothesis for the Study.........................................................................4

1.6 Scheme of the Study................................................................................4

II. LITERATURE REVIEW............................................................................6

2.1 Linkage Between Corruption with Cash Holding.................................10

2.2 Empirical Evidences..............................................................................13

2.3 Variables of the study............................................................................18

2.3.1 Dependent Variable..........................................................................................18

2.3.2 Independent Variables...................................................................................18

III. RESEARCH METHODOLOGY..............................................................20

3.1 Nature of the Study................................................................................20

3.2 Data and Data Collection Procedure.....................................................20

3.3 Population and Sample Size..................................................................20

 3.4 Model for the Study...............................................................................20

3.5 Tools of Analysis..................................................................................23

IV. DATA ANALYSIS......................................................................................26

4.1 Descriptive Statistics.............................................................................26

4.2 Multicollinearity....................................................................................28
..........................................................................................................................................28

4.3 Correlation.............................................................................................29

4.4 Panel Diagnostic Test............................................................................30

4.5 Regression Analysis..............................................................................31

4.6 Discussions:................................................................................................33

V. SUMMARY, CONCLUSION AND RRECOMMENDATIONS............35

5.1 Summary................................................................................................35

5.2 Conclusion..................................................................................................36

5.2 Recommendations.................................................................................37

REFERENCES...................................................................................................38
 LIST OF TABLES

Table No. Title Page No.

Table 4.1 Descriptive Statistics (Shinghai Stock Exchange)...............................24

Table 4.2 Descriptive Statistics (Pakistan Stock Exchange)................................25
Table 4.3 Variance Inflation Factor.....................................................................26
Table 4.4 Correlation Matrix................................................................................27
Table 4.5 Summary of Panel Diagnostic Test......................................................29
Table 4.6 Regression Analysis.............................................................................30

i
 EFFECT OF CORRUPTION ON CASH HOLDING:
A CASE STUDY OF PAKISTAN AND CHINA

BY
Mian Jan and Dr. Idrees Ali Shah

Institute of Business and Management Sciences

Faculty of Management and Computer Sciences
The University of Agriculture
Peshawar Pakistan
March, 2023

ABSTRACT
The aim of the research is to investigate how corruption affects cash holdings in
China and Pakistan. The information, which covers the years 2016 through 2021, was
given by the Pakistan Stock Exchange and the Shengai Stock Exchange. The
companies listed on the Shengai and Pakistan stock markets make up the sample
population for the research. The sugar business has this defense since it is 's second
sector of industry. Panel data analysis is used in the analysis. The results of the fixed
effect model show that corruption has a positive and substantial influence on
corporate cash holding. The results support the agency hypothesis, which contends
that in societies with high rates of corruption, powerful managers amass vast
quantities of money and utilise them for their personal gain at the cost of owners.
Cash flow and market-to-book ratios are examples of control factors that have a
strong beneficial influence on cash holding. But, the quantity of money you have on
hand is mostly unaffected by age and leverage.

Keywords: Cash Holdings, Corruption Index, Net working capital, market to book
ratio, Leverage, Age of business

ii
 I. INTRODUCTION

1.1. Background of the Study

Now a day’s corruption is very common among the developing countries like
paskistan. Massive corruption is found in Pakistan because Pakistan is always the top
in the ranks provided by international organizations, among many developing
countries (Kaufman et al., 2005, Transparency International, 2004). This is apparent
from a recent transparency international assessment (2012), which classified Pakistan
as the 139th on the Rule of corruption free governance committee of nations.

Nowadays, corruption is like a worldwide epidemic that has an impact on the

economy of both developing and underdeveloped nations. The difference only exists
in corruption. Five years ago, the presidents of the United Kingdom, Belgium,
French, Spain, Italy, and Spain were found guilty of corruption. The whole European
Commission has also submitted their resignation. Cash and cash equivalents are the
most liquid resource that hasn't yet been included on a company's balance sheet
(Iuliana and Riana., 2015). Businesses need cash equivalents to conduct their routine
business operations. The definition of cash holding given by (Gill and Shah., 2012) is
described as cash that is close by or easily accessible for usage in investing in
physical resources and giving money to speculators. Several techniques are used to
construct the factors that impact working capital because of the importance of cash
and how crucial it is to managing it. Debasement, according to Transparency
International, is the misuse of official authority for one's own benefit, as well as the
effect it has on the cash flow and cash holdings of companies that develop market
sectors. Cash holdings are positively connected with corruption, as according (Bhanu
and Kannadhasan., 2019), and by managing cash holdings upward, it is possible to
make money with cash exchange in a lawless environment. Likewise, companies are
rewarded for retaining cash. However, it doesn't make a difference if the organization
is working in a high degenerate climate with low security of speculator.

When all is said in done, the confirmation recommends that corruption

assumes a fundamental function in molding organizations' cash approaches to
developing the business sector. Organizations working in a more degenerate climate
1
have less hold of cash and shelter issues more profits. Organizations are probably
going to diminish their stores of cash when working in a unionized industry to pick
up favorable positions during the time spent dealing with associations. Put another
way, organizations keep away from the extraction of cash by outer gatherings by
imparting signs that liquidity is low. Monetary limitations, for example, admittance
to capital business sectors and obligation proportions demonstrate that there is no
relationship between cash and business execution, yet organizations with huge
speculation openings are exceptionally esteemed According to (Myint, 2000),
corruption has existed in every country and is too widespread for human growth. It
appears in developed countries as well as impoverished ones, in public and private
spaces, in benefits and even in charitable organizations. Good governance is severely
hampered by corruption. According to (Banerjee et al., 2012), development
techniques in many countries have relied heavily on anti-debasement strategies, and
the World Bank has supported more than 600 anti-corruption programmers since
1996. Cash loading is done to provide the company more financial flexibility.

(Tran and Trung., 2019) Investigate how corporate cash reserves are affected
by corruption. A analysis showed that corruption was positively linked to both
currency reserves and cash flow sensitiveness, with a dataset of 9,333 findings
across 46 countries. They also found that, when appropriate, the consequences of
corruption are greater. Analysis reveals, moreover, that corruption lowers cash
valuation. Studies demonstrate that cash bribery is consistent worldwide and
companies appear in their corporate liquidity management to balance motives and
bribery motives.

According to (Gao et al., 2013), who looked at the cash ratios of US public
and private companies, private companies still have roughly half as much cash as
public enterprises, despite having more financial constraints. This discrepancy is
partly responsible for the relative worse agency problems that the latter category of
companies experience. (Bigelli and Sanchez-Vidal., 2012) share the same conclusions
on how financial constraints affect the cash strategies of private enterprises both
domestically and abroad (2014).

Yet, maintaining cash may reduce the costs of managing unfamiliar capital
2
business sectors, and although it is difficult to get credit, it might be used as a
financial cradle available to the company, according to (Rocca et al., 2017). On the
other hand, a cash arrangement may encourage wise management. According to
Rocca et al., 2017), the utilisation of cash stock, while crimes like pay-offs, gifts, or
salaries have been used to promote personal benefits and some financial
specializations, they may be used interchangeably under certain circumstances.

According to (Khan, 1996) Pakistan's economy has effectively blended with

the world's failing nations. Indicators from the World Bank from 1998 show that
Pakistan's GDP has declined by close to 10%. Investigating the demeaning elements
in Pakistan should be done in this manner. The purpose of this investigation was to
determine the direction that debasement has on the relationship between holding cash
and managing and operating a corporation. The investigation's main goal is to
determine how holding cash and corporate administration affect the company's public
image while accepting debasement as a middle ground. As control parameters,
business size, considerable quality, and influence (Debt to Equity) have all been
combined.

In their 2017 study, Rocca et al. noted that past research by experts have
called attention to the moderating effect of depreciation on the relationship between
cash property and business success in the Italian setting. Yet, research into mitigating
the effects of deterioration in the relationship between corporate governance and
business execution slows down. Because of this, this investigation tries to ascertain
the extent to which retaining cash and client administration have a degraded effect on
corporate operations..

1.2Objectives of the Study

1. To investigate the effect of corruption on cash holding

1.3Problem Statement

Corruption, interacting with cash available, may improve gains rather than
exacerbate corporate liquidity drawbacks, exacerbating opportunistic and systemic
issues(La Rocca et al., 2017).In situations where investor security and manipulation
3
are weaker than those where institutional efficiency is stronger, cash liquidity may
especially be negative for corporate success (Amess et al., 2015; Pinkowitz et al.,
2006).

This seems to be due to the fact that management might have big cash
reserves for corruption activities, of strong discretion and opportunistic autonomy,
rather than optimising equity of shareholders. In comparison, the carrying of cash
enhances output in situations of better regulation of corruption by the convergence of
preferences between management and customers, without distorted results resulting
from conditions of Black Money. This seems to occur because administration could
retain vast cash reserves for illicit activity, high discretion and opportunistic
sovereignty rather than optimising shareholder capital.

1.4Significance of the Study

The present research study's findings address how a system of good
governance may prevent self-interested top executives from misusing company funds
for their own personal advantage. The research was beneficial for the relevant
legislation as a foundation for controlling corruption in order to investigate how
corruption affects cash holding..

1.5Hypothesis for the Study

H0: Corruption has no significant influence on cash holding.

H1: Corruption has a significant influence on cash holding.

1.6Scheme of the Study

1st Chapter:
highlights the study's opening arguments, problems statement, purpose, research
objectives, and significance.

2nd Chapter
focuses on various research initiatives and papers while discussing the literature
review of prior investigations.

4
3rd Chapters:
introduces the methodological challenges that were involved in gathering the
project's resources.

4th Chapter:
conclusions and analysis drawn from financial data.

5th Chapters:
Conclusion and suggestions are made regarding the subject of the study after taking
the data into account.

5
 II. LITERATURE REVIEW
High cash holdings are a common occurrence for businesses worldwide. Also,
global studies reveal that publicly traded corporations throughout the globe maintain
sizable cash balances and have preventative measures. For instance, Ferreira and
Vilela (2004) discovered that in Continental Europe in the early 2000s, corporations
held 15% of their total assets in cash and cash equivalents. Together with the US
research, they discovered a favorable relationship between cash reserves, company
cash flows, and their ability to acquire bank financing (eg. Bates et al., 2009, Opler et
al., 1999).

From a wide range of different understandings, the following perspectives of

corruption can be derived: According to (Nur, 2019) in Pakistan, corruption is a
common phenomenon. It comprises the abuse of personal authority and is practicable
in private and public sectors. A quick summary of corruption, its origins in Pakistan,
varieties of corruption and the study's aims is given by the introduction of this
document. The article contains the theoretical underpinning of research, which links
the work of several writers, contrasts their perspectives and summarizes the work. It
also provides a full literature assessment of the subject at issue, approaches
established by other scholars and advancements in combating corruption in Pakistan.

In spite of the legislative framework developed in the year 2002 to limit the
vice, Transparency International (2017) states that corruption is pervasive in Pakistan.
Transparency International also emphasizes that government workers and law
enforcement workers are engaged in small-scale, difficult to oppose corrupt practises.
It shows a close relation between corruption and the history of the country, with the
time the country was created by certain writers.

Corruption is defined as the abuse of authority for personal gain, dishonest or

fraudulent behaviour on the part of those in positions of authority, usually involving
bribery, and dishonest or illegal behaviour, particularly on the part of those in
positions of authority such as government officials or law enforcement officers.

6
Types of Corruption

1. Bribery

2. Conflict of interest

3. Illegal financing of political parties

4. Influence peddling

5. Misuse of official position\

6. Nepotism

7. Revolving door effect

8. State capture

9. Trading in know-how and insider information

10. Vote-buying
Javaid (2010) It was fully conveyed that, unfortunately, corruption defined as
abuse of privately held authority is rampant in Pakistan. It is immune to no structure,
hierarchy or public sector office. It's huge spread. It penetrated every state organ—it
even placed its clutches on the court and legislature beyond the executive level. It was
no exaggeration to suggest that this illness and its lifeless weight plagues the whole
state of Pakistan. Its impact is such that Pakistan has placed 139th among nations on
the level of free governance of corruption. This classification is not enviable or
acceptable at all.

As per Melgar et al. (2009) the meaning of corruption was made by

considering the illegal trait of dishonor that incorporates good, political, social,
monetary, researchers, authors, erudite people, and multi associations. In any event,
the most common and essential characterization is that corruption is the misuse of
governmental authority for personal gain or profit.

The World Bank (WB) produced the worldwide administration markers,

which employ a comparative explanation of public mistreatment for private addition.

7
The Corruption Index Indicator of Global Competitiveness, the namely very file of a
Discussion Site of Socioeconomic Character traits, the Global Competitiveness
Document, the global Country Based On the Risk folder by the Group of Political
Risk Services, and the worldwide administration markers are all included by Ahmad
and Aziz (2001). These records expose all official behavior, such as that of
lawmakers and other government officials.. In spite of

These materials most certainly explain deceit in a similar way, but there is no
evidence to support the conclusions they make.

According to Khan (1996), corruption is a break from the normative code of

conduct that directs how public officials should behave. According to And vig et al.
(2001), some prominent forms of corruption include theft, payoffs, intimidation, and
extortion. Ahmad and Aziz (2001) examine four unusual debasement files and find
that these lists of corruption yield the same results. They also acknowledge that the
results exhibit stability over time. A few studies have looked at the impact of cash
flow surpluses on business value. A significant portion of the theory also addresses
how corporate management and financial surplus affect an organization's evaluation.
Several studies suggest that retaining excess cash has a positive impact on rising
business value. Following findings from all across the world, a Chinese expert named
Peng (2006) examined recorded organisation information ostensibly and came to the
same conclusions. The researchers attempted to do research on surplus cash and its
impact on organisational value. Their discovery was similar to others in that retaining
excess funds improved the organization's image.

Yang and Zhang (2009), two separate scientists, conduct research on the
impact of organisational management on financial resources in relation to financial
conflicts between controlling as well as various investors. So, they discovered that the
market value of cash assets may be increased by better corporate management and
that cash property and friend esteem are strongly connected at a massive degree of
1%. Through their investigation, Yanyan, Jinwei, and Hanming (2013) showed that
excess cash might benefit companies in terms of their financial needs. Also, the value
of the extra cash kept by privately held companies is far larger than that of state-
owned enterprises.. Faulkender (2006) noticed abundance stock re-visitations of set
8
up the distinction in cutoff points achieved by different cash-related arrangements and
the impact of capital restrictions on cash esteem. Thus, it was demonstrated that the
minimal cash esteem builds as per the degree of cash holding proportion and financial
influence. On different hands, cash utilized to deliver profits will lessen as far as
possible when contrasted with an offer repurchase. The broad writing of corporate
administration outlines that corporate administration has significantly affected
business execution in the fiasco by influencing the company's danger taking and
financing approaches.

The corruption hypothetical model was recommended by Bhattacharyya and

Hodler (2010) to produce a model that resembles Slovenian institutional structures.
Anderson, Mansi, and Reeb (2004) hypothesised that one reason for corporations
with more autonomous sheets of paper experiencing a decline in stock value during
the crisis was that these organizations were more driven to seek money at that time.

According to Kashyap, Rajan, and Stein (2008), raising money during a crisis
is wasteful. Given that it considered resource developments from current investors to
borrowers throughout the emergency, it may have triggered disintegration in the
value profit percentage. The institutional framework within which a company
conducts business is one of the areas of current research on the link between cash
assets and corporate execution.

In an institutional environment, Frésard (2010) promotes this link throughout

key moments like the rite of passage into capital-intensive industries, cost of capital
obligations, GDP growth, and monetary framework development. Concerning the
unobtrusive part of corruption, as Chen (2011) as of late affirmed, in monetarily small
circumstances with a low assurance of speculator and elevated levels of debasement,
cash holds are exceptionally wasteful and decrease the organization's presentation.
Chen acknowledges that organisations will hoard funds to pursue their own interests
and make personal advantages.

According to Rocca et al. (2017), organisations functioning in nations that

show in accordance with the rules but are inevitably subject to extortion, their display
is impacted by a potentially destructive and degenerate framework. An institution's
9
environment is heavily influenced by corruption. This stifles competition in the
market and leads to crooked political and business relationships. Establishing
corporate governance requires the elimination of corruption, just as autocratic
behaviour does (La Rocca, Cambrea, & Cariola, 2017).

According to Kalcheva and Lins (2016), workplace corruption has a negative

impact on how businesses manage their cash flow and forces them to protect their
liquid resources. The most important resource is cash, and a part of it directly affects
how an organization appears. The impact of debasement on enterprises' cash assets is
also unfavorable. Devaluation, according to some analysts, weakens institutional and
market-based control structures, which results in poor company management and
serious legislative tensions.

In order to evade market scrutiny, Abiola and Olausi (2014) found that
companies with poor organizations choose unconstrained cash over bank loans.
Azmat (2014) assessed and observed monetary resources both during open activities
and private ones. After adjusting for standard features, this research demonstrated that
private businesses often retain less cash than public businesses.

2.1Linkage Between Corruption with Cash Holding

Currently, there is a growing worry about corruption on a global scale. There

has been a significant quantity of academic studies on corruption as a result of
growing public interest in and concern about it. Economic rent is a key notion in
corruption. Corruption is widespread and deeply ingrained in Pakistan. The public
policy makers in Pakistan have a variety of options for eradicating corruption.

Corruption is a global ill that affects both developed and emerging nations
alike. It is a prevalent phenomenon that exists in all nations, whether they are
wealthy or developing. Only the severity of the corruption varies. Leading politicians
from the UK, Belgium, France, Spain, and Italy have all been found guilty of
corruption in the last five years. The outcome was the resignation of the whole
European Commission. The notion of corruption is said to date back to ancient times
by U-Myint (2000), the World Bank (2001), the Appellate Authority of a
10
Government of India (2001), and Anupam Das et al. (2001). Corruption continues to
be a significant issue in the contemporary world, particularly in emerging nations,
despite the fact that it may take on new shapes throughout time.. U-Myint (2000) says
that corruption is a worldwide problem that affects every country..

According to the World Bank (2001), corruption is seen to be widespread and

endemic throughout the world. It is a major cause of poor economic development,
discourages investment, hinders the delivery of public services, and increases
inequality. The "single biggest" hindrance to social and economic progress is said to
be corruption. Anupam Drawing on a variety of studies, Das et al. (2011)
hypothesized that corruption might result in the destruction of democracy, the
violation of human rights, the crash of markets, a decline in standard of living, and
more threats to social welfare. As corruption is perceived to disproportionately afflict
the poor, rising countries are regarded to be especially affected by it. According to the
World Bank (2004), more than US$ 1 trillion is allegedly paid in bribes each year,
and nations that fight corruption, improve governance, and maintain the rule of law
may see a surprising 400% increase in per capita income.

corruption might result in the loss of democracy, a violation of human rights,

an collapse of markets, a reduction in standard of living, and more hazards to public
health the welfare state. As corruption is perceived to disproportionately afflict the
poor, rising countries are regarded to be especially affected by it. According to the
World Bank (2004), more than US$ 1 trillion is allegedly paid in bribes each year,
and nations that fight corruption, improve governance, and maintain the rule of law
may see a surprising 400% increase in per capita income.

According to U-Myint (2000), the biggest challenge to development is

corruption in the public sector. Most nations in the Asia and Pacific region agree that
corruption is a major hindrance to about there social, political, and economic progress
and, as an outcome, see it as a problem needing immediate attention at the highest
level. These nations are also very concerned about this issue and see it as requiring
immediate attention at the highest level. U-Myint (2000) said by mentioning various
studies (such as Gray and Kaufmann 1998) that developing countries have voiced
worry about the growing understanding that corruption may have a major negative
11
influence on development.

UlHaq et al. (2020) examine the impact of cash holding and governance
practices onbusiness performance while controlling for corruption. Furthermore,
control factors such as leveraged (Debt to Equity), business size, and asset quality
have been included. The dataset of 70 nonfinancial businesses was gathered for
twelve years (2008-2019) to verify the empirical state of the connection. After the
relevant assumptions have been met, inferential and descriptive statistics have been
used. Pooled regression was employed to verify the empirical state of the hypotheses
because panel data was utilised. The results demonstrate that corporate governance
and cash management have a significant, positive influence on the firm's
performance. The performance of a corporation is impacted by corruption.
Corruption also acts as a moderator in the link between cash hoarding, governance,
and company success. The findings of the research might help law enforcement
agencies in their fight against corruption, which would improve how well corporate
governance affects cash holdings and firm performance.

Anjum et al. (2020) look at the moderating effect of corporate governance on

the relationship between cash holdings and business performance. Secondary data
from 145 non-financial companies listed on the Pakistan Stock Exchange (PSX)
between 2006 and 2017 are used in the study. To solve the problem

Unobserved heterogeneity is modelled using the GMM, an interactive method

of moments. The findings of this study suggest that having large amounts of cash
does have a significant influence on corporate performance. Additionally, the
connection between cash holdings and company success is significantly altered by
corporate governance.

A significant amount of past research has shown that corruption regularly has
a detrimental impact on macroeconomic concerns, however according to Tran
(2019), there is disagreement over the connection between corruption and corporate
financial decisions. In this study, we look at how the presence of corruption affects a
company's cash holdings. We demonstrate that corruption is positively connected
with both cash holdings or cash flow sensitivity in a sample of 199,333 samples from
12
46 different nations. Robustness tests using a smaller sample without US and
Chinese companies, additional metrics of cash holdings, and regression techniques
all support our findings. We also discovered that if shareholders have adequate legal
protection, the impacts of corruption are exacerbated. Moreover, our analysis
demonstrates that corruption lowers the monetary value. According to the statistics,
companies balance agency and corruption aims while managing their liquidity, and
the global incentive for corruption with regard to cash holdings is also shown.

Corruption is a problem that increases an organization's unpredictability and

risk since it casts doubt on the existence of a reliable legal and judicial system. For
instance, the use of cash stock, especially under certain circumstances, may be
leveraged for illicit activities, such as paying bribes, gifts, or salaries to specific
economic players, who are often well-known individuals, in order to further business
operations or one's personal interests (Jan, 2021).

2.2 Empirical Evidences

2019 (Nguyen Thanh) (Nguyen Thanh) Look into any suggested cash holding
ratios for improving business success. To determine the threshold impact of the cash
holding ratio on the firm performance of the 306 non-financial companies listed on
the Vietnamese stock market between 2008 and 2017, the threshold regression model
is employed. The experimental findings show that the success of the business and its
money supply growth ratio are linked by a single threshold. The corporation may
perform better if its effective money supply growth rate is 9.93% or lower. To put it
another way, efficiency gradually decreased as the cash holdings ratio rose.

Due to the favourable value, which starts to decrease after the cash holding
ratio surpasses 9.93 percent. As a consequence, the success of the company and its
cash holding ratio are not directly related. This holding has policy implications for
non-financial enterprises listed on the Vietnam Stock Exchange when choosing how
much cash to keep on hand. For non-financial enterprises listed just on Vietnam
Stock Exchange, the maximum cash holding ratio is 9.93%. To safeguard and
enhance the functioning of the company, the suggested range of money supply
growth ratios should be lower than 9.93 percent. Han and Seo from 2018.
13
 Using 97 international data sets, empirical research is done on the effects of
government corruption on corporate cash holding practises and the effects of cash
holdings and business performance. We discover a nonlinear cubic function
connection between firm cash holdings and political corruption as well as a negative
quadratic term for the political corruption coefficient. Official corruption with cash
assets correlates in a U-shape in industrialized nations that have a low incidence of
political corruption; however, in frontier and developing countries, the association is
reversed. These findings demonstrate the non-exclusiveness of the "Expropriation
Shielding hypothesis" and the "Preoccupancy hypothesis," two previous literary
conceptions. .but may be explained differently depending on the degree of
development of nations and the extent of political corruption. Furthermore, we
discover that the consequences of government corruption on corporate performance
differ in rich and developing nations when enterprises use cash. We conclude that
political corruption is a significant determinant in corporate finance policy and
business performance based on these findings.

Currently, there is a rising worry about corruption on a global scale. There has
been a significant quantity of academic study on corruption as a consequence of
growing public interest in and concern about it. Economic rent is a key notion in
corruption. Corruption is widespread and deeply ingrained in Pakistan. The public
policy makers in Pakistan have a number of options for eradicating corruption (Khan
et al. 2012).

According to Javaid, corruption, which is defined as the misuse of power for

personal benefit, is tragically widespread in Pakistan (2010). Every level, department,
and organization in the public sector are impacted. Its spread is fairly extensive. All
state institutions have been impacted; in addition to the executive branch, the judicial
system and legislature have also been targeted for criticism. It wouldn't be an
exaggeration to say that the whole state of Pakistan is wailing under its dead weight
and afflicted by this condition.. Due to how widespread it is, Pakistan is rated 139th
out of all countries in the world for having a government free of corruption. This
rating is neither admirable nor appropriate.

According to Taghavi et al. (2011), corruption and other abuses of

14
governmental authority for private gain are a common occurrence in the political and
administrative structures of many nations. This is the effect of several things. The
following are some of the most significant contributing factors to it: excessive
government corruption in the economy, an ineffective administrative corruption, an
Increased rent, murky regulations, poor corruption, unequal income distribution,
bureaucracy and sophistication, governmental and private monopolies, interference
from tall politicians and governmental authorities, a lack of governmental
accountability, and other issues similar to these that form the basis for these issues.

According to Maqbool (2000), the fact that official misbehavior among

political elites as well as administrators and the concomitant spread of corruption
among businessmen have been a major and frequently decisive cause whenever a
political order has fallen in Pakistan and some other South Asian countries is one
indication of the extent of corruption in Asia.

Haque (2010) asserts that corruption is rife at government hospitals, especially

in developing nations. Corruption begins at the highest levels. The World Health
Organization (WHO), local governments, the Ministry of Health, multinational
corporations, non-governmental organizations, covert organizations, and influential
media all contribute to the misallocation of government hospital health budgets
toward the wealthy and powerful and away from the weak and powerless. They
rob the impoverished patients of a substantial portion of the little healthcare
resources. When a society is corrupt, corrupt, inept, and impotent individuals are
appointed to positions of power and ruin systems by their acts and inactions. The
Pathology Department's operations are negatively impacted by corruption in
government hospitals! All sane and honest members of society must battle
materialism and greed by instilling strong moral and ethical principles at all levels
and in all aspects of society in order to have sound and pleasant healthy systems.

Academics from all around the globe are taking notice of the enormous
increase in corporate cash holdings. As a result, there has been a significant amount
of academic study on the connection between cash holdings and firm profitability and
value. To clarify the two main causes of cash hoarding—agency and prudence—this
article analyses and summarises the relevant literature. After examining empirical
15
research to see how well-established ideas are supported by data from various
nations, the authors provide a more straightforward model that analyses the barter
between these two reasons for holding onto money. Moreover, they investigate how
successfully different corporate governance practises reduce cash holdings and the
degree to which these practises provide investors confidence that their cash won't be
squandered. Finally, they talk about problems with measurement and methodology in
empirical research on cash holdings (Amess et al. 2015).

(La Rocca et al. 2017) examined the link between capital reserves and
performance while taking into account the moderating impact of institutional
corruption that occurs in the setting in which enterprises operate. The findings
highlight how crucial corruption is in influencing the magnitude and trajectory of the
price of cash assets. Depending on the degree of corruption, corporate liquidity has a
different impact in how well a corporation performs. It has been shown that having
cash on hand considerably and not insignificantly supports corporate operations,
indicating a possible area of interest for future research.

(Kusnadi et al. 2011) investigate how political ties affect business liquidity
strategies and their effects in a global context. Our research reveals that managers of
politically linked businesses tend to accumulate more cash than their non-connected
peers. Additionally, the existence of political links devalues cash assets. Our major
results are more evident, according to our study, for companies in developing markets
as well as for companies located in nations with inadequate investor protection laws
and significant levels of corruption. Our empirical findings generally support prior
research on the agency cost justification of corporate cash hoarding.

Recent cross-country studies have shown that institutional factors at the

national level have a significant role in determining corporate liquidity strategies
for multinational corporations (Ali, Khan, and Khalid 2016; Javadi et al. 2021; Javaid
2010; Nur 2019). In this regard, scholars employ three country-level variables to
quantify the amount of corruption, investor legal protection, and capital market
development. Based on each of these three institutional variables at the national level,
the authors divided the whole sample into two sub-samples and estimated cross-
sectional regressions of cash holdings on political ties for each sub-sample. Prior
16
research has also shown that linked lending is more common in developing nations,
as well as those with lax legal systems and significant levels of corruption. Therefore,
according to authors, these nations have a stronger positive correlation between
political ties and cash holdings. In fact, our hypothesis is confirmed by the actual
results of the split sample regressions.

For social and economic progress, government and good governance are
essential. However, due to Pakistan's poor reputation in international relations, these
characteristics seem outdated in Pakistan. In most cases, corruption is a likely result
of such circumstances. The acceptance of corruption has grown through time despite
the fact that it is pervasive in the nation. This study focuses on analyzing corruption
in the nation with particular reference to the nation's anti-corruption agency. Data
were gathered by analyzing policy papers and conducting semi-structured interviews
with National Accountability Bureau employees. The interviews were analyzed using
a thematic approach. The findings indicate that many cops don't fully comprehend the
problem. Instead, several cops justified the phenomena in terms of recouping stolen
public funds from dishonest individuals.

The officers also didn't care about how integrity breaches and corruption were
defined, since corruption was sometimes defined too broadly and other times too
narrowly. Unlawful monetary rewards and the illegal use of power are among the
most significant kinds of corruption, according to research on the most and least
common types of corruption. The issue of Statutory Regulatory Ordinances (SRO) is
thought to be one of the least frequent forms of corruption in NAB-KP. The study
demonstrates many causes for the prevalence as well as strategies to reduce it. This
study concludes with several policy suggestions and new paths for the area's future
research (Ali et al. 2016).

The formation of anti-corruption institutions is a common reaction when

societies are faced with the issue of corruption. Meagher (2005) emphasizes that
many nations utilize various strategies to achieve this. The National
Accountability Bureau, the anti-corruption agency in Pakistan, is the subject of this
study, and the practices there are comparable to those in Hong Kong. The National
Accountability Bureau (NAB) is regarded as Pakistan's premier agency for combating
17
corruption. Since the country's independence, it has consolidated all of the previous
anticorruption organizations' authority. Additionally, even if corruption is under
investigated by another agency, NAB has the power to include it in its purview.

Undoubtedly, it is believed that corruption is bad for society as a whole

(Klitgaard, 1988). However, it becomes worse when the general public's
opinions start to change and embrace this threat. The view is that corruption is
becoming more widely accepted in Pakistan (Javaid, 2010). Anti-corruption agencies
in Pakistan are not often studied in this context. The purpose of the NAB case study
was to find out from the organization and its officials whether or not the rise in
corruption acceptance among the general public was reflected or translated in their
organization. Additionally, to investigate what constitutes corruption and how it is
dealt with by the authorities.

2.3 Variables of the study

2.3.1 Dependent Variable
i. Cash Holding

Companies keep cash at the desired amount after accounting for marginal
benefits. As a consequence, the majority of companies have a target cash holdings
level. On the other side, the pecking order theory argues that companies lack such
target and instead maintain additional cash on hand to serve as a stopgap among
retained earnings and future investment needs. The money that a person or company
keeps on hand for spending as opposed to investing. Managers' capacity to react to
the market is constrained by insufficient cash holdings. In contrast to assets like real
estate, stocks, and bonds, ready cash is a person's or company's only source of
resources. So, businesses maintain cash reserves to prevent borrowing from outside
sources when retained earnings are inadequate to cover fresh investments (Uyar and
Kuzey 2014).
2.3.2 Independent Variables

i. Market to Book Ratio

A measurement that contrasts the book value and market value of your
company is the market to book ratio. This is based on the stock's current market price
18
and any outstanding shares that it may have. The book to market ratio works similarly
when used in reverse and may be used to ascertain the same thing—the total worth of
your firm. To determine if your company is overpriced or undervalued, analysts and
investors may utilize both measures (Bhattacharyya & Hodler, 2010).

Market Capitalization
MTB=
Total Book Value ¿
¿
ii. Net working Capital
Net working capital is the difference between such a company's current assets,
which include cash, accounts deferred revenue invoices from customers, inventories
of raw materials, and finished goods, and its current liabilities, which include loans
and accounts payable (NWC). It's a widely used indicator to evaluate the current state
of a company..
CurrentAssets
NWC=
Current liabilities

iii. Corruption Perception Index

The Corruption Perceptions Index (CPI) is the most popular corruption index
used globally. According to academics and businesses, it gauges how corrupt each
nation's governmental sector is thought to be. According to academics and businesses,
the Index rates 180 countries and territories based on how corrupt the public sector is
seen to be. It employs a scale of zero to 100, with zero being severely corrupt and 100
being very clean, and it draws on 13 separate data sources. The average worldwide
score stays constant at 43, while 68% of countries have ratings below 50. 25 countries
have greatly raised their ratings during 2012, while 23 have significantly decreased.

19
 III. RESEARCH METHODOLOGY

3.1 Nature of the Study

The study was quantitative research methodology and the effect of corruption
on cash holding was checked numerically. The study was based on exploratory
research and used a positivism research philosophy. It used a deductive approach and
uses a case study as a research strategy. The study was based on secondary data
which was collected from annual reports of respective firms.

3.2Data and Data Collection Procedure

The secondary data was be used for the current study and the data for the
variables on firm-based was downloaded from annual reports of respective firms.
Data was collected from the PSX and SSE.

3.3Population and Sample Size

The population is 22 and 278 from PSX and SSE, respectively. The
justification behind sugar sector is that it is the second largest sector of Pakistan. The
current study used the data from the sample of 22 firms each listed in Sugar sector at
Pakistan stock Exchange and 278 firms listed at Shanghai Stock Exchange from 2016
to 2021(6 Years data).

3.4Model for the Study

The following regression equations was applied (Made up with the help of
previous literature). The model aims to analyze the determinants of cash holdings
(CH) in a company. The factors considered in the model are Corruption Perception
Index (Corruption), Size (measured by the natural logarithm of total assets), Market
to Book Ratio (MtoB), Leverage (calculated as the ratio of total debt to total equity),
and Net Working Capital (NWC). The model assumes a linear relationship between
these variables and cash holdings.
Corruption is included as a binary variable in the model. The Corruption Perception
Index (CPI) dummy variable is used to capture the level of corruption in a country. It

20
is reasonable to assume that companies operating in more corrupt environments may
hold higher cash reserves as a precautionary measure to mitigate risks associated with
corruption (Fan et al., 2007). The coefficient β1 captures the effect of corruption on
cash holdings. Size is included as a control variable in the model. The natural
logarithm of total assets is used as a measure of firm size. Larger firms may tend to
hold more cash due to economies of scale, increased financing needs, or strategic
considerations (Opler et al., 1999). The coefficient β2 represents the relationship
between firm size and cash holdings.
The market to book ratio is included as a proxy for market valuation and growth
opportunities. It measures a company's market value relative to its book value. Higher
market to book ratios may indicate higher growth prospects, which can influence cash
holding decisions (Ferreira & Vilela, 2004). The coefficient β3 reflects the impact of
market to book ratio on cash holdings.
Leverage is included as a control variable in the model. It is calculated as the ratio of
total debt to total equity. Firms with higher leverage may hold more cash to ensure
liquidity and financial stability in the face of debt obligations (Opler et al., 1999). The
coefficient β4 captures the relationship between leverage and cash holdings.
Net working capital is included as a control variable in the model. It represents the
difference between current assets and current liabilities. Companies with higher net
working capital may have more cash available for operational needs, which can
influence their cash holding levels (Opler et al., 1999). The coefficient β5 captures
the impact of net working capital on cash holdings.
Overall, the model incorporates multiple variables to examine the determinants of
cash holdings in a company. The coefficients β0, β1, β2, β3, β4, and β5 represent the
respective relationships between the variables and cash holdings. By estimating these
coefficients using empirical data, the model aims to provide insights into the factors
influencing a firm's cash holding decisions.
The references provided are examples of relevant literature that discuss the
relationship between the variables mentioned. Please ensure that you consult and cite
the appropriate sources specific to your research context.

CH it = β0+ β1Corruptionit + β2 Sizeit + β3 MtoBit + β4 Leverageit + β5 NWCit + µit

(Source: La Rocca, Cambrea, & Cariola, 2017; Kalcheva & Lins, 2016)

21
22
Table 3.1 Description of the Variables

CH Cash Holding

Corruption Corruption Perception Index (CPI) dummy variable is used

to measure corruption

Size Natural Log of Total Assets

Size=Ln (Total Assets)

Market to Book It is used to evaluate a company's current market value

Ratio relative to its book value

Market Capitalization
MTB=
Total Book Value ¿
¿
Leverage It can be calculated by dividing Total Debt by Total
Equity
𝑇𝑜𝑡𝑎𝑙𝐷𝑒𝑏𝑡
Lev=
𝑇𝑜𝑡𝑎𝑙𝐸q𝑢i𝑡𝑦

Net working Capital Current asset minus Current Liabilities

CurrentAssets
NWC=
Current liabilities

3.5 Tools of Analysis

The study has performed the following analysis:

1. Panel model

A kind of data known as panel data, sometimes known as longitudinal

data, contains observations on several cross - section throughout time. Since
panel data includes observations collected over time on numerous cross
sections, it was used in the study. One may think of time series and cross-
section data as special cases of one-dimensional panel data.. The following
three models are available.:

23
i) Fixed Effect Model

In this model Fixed results of lower squares are calculated (or, more generally,
maximum likelihood). It Explores the relation between prediction and result
variables in an entity (country, person, company, etc.). The indicator variables
may or may not affect each entity's individual characteristics

ii) Random Effect Model

In this model Random results of reduction are predicted (in the Robinson
terminology, 1991). The justification for random effects is that the changes between
agents are considered random and unconnected with the indicator or independent
variables used in the model, in contrast to the Fixed Effects model.

iii) Hausman Test

The Hausman test is also referred to as the model defect test. You can
choose a model of fixed effects or a model of random effects for the panel analysis
with the use of the Hausman Test.

2. Multicollinearity

In a multiple linear regression, the term "multicollinearity" refers to high

correlations among two or more components. When a research or analyst wants to
assess how well each regression analysis may be utilised to forecast or comprehend
the dependent variable within a statistical model, multicollinearity may result in
skewed or incorrect findings. In general, multicollinearity may result in larger
confidence intervals, which may result in probabilities that are less accurate in
foretelling the effect of the independent variables in such a model.

3. Descriptive Statistics

It was defined using the data's mean, median, highest and lowest values. Brief
informative statistics known as descriptive statistics are used to summarise a
particular data collection, which may be a sample of a population or a representation
of the whole population. Measures of central tendency and assessments of variability
are both included in descriptive statistics (spread). The mean, median, and mode are
24
measurements of central tendency, while the standard error, variation, maximum and
lowest variables, kurtosis, or skewness are measures of variability. It was defined
using the data's average, median, highest and lowest values. Brief informative stats
known as descriptive statistics are used to summarise a particular data collection,
which may be a sample of a population or even a representative of the whole
population. Measures of central tendency and assessments of variability are both
included in descriptive statistics (spread). The mean, median, and mode are
measurements of central tendency, while the standard deviation, variation, maximum
and lowest parameters, kurtosis, and skewness are measures of variability.

4. Correlation Analysis

It was done to demonstrate how closely the variables were connected to one
another. A statistical technique known as correlation analysis is used in research to
determine the relationship between two variables and gauge how strongly they are
linearly connected. Correlation analysis, to put it simply, evaluates how much one
variable shifts in response to a change in another. A substantial association between
the 2 factors is shown by a high correlation, whilst a tenuous relationship is indicated
by a low correlation. In market research, association analysis is used to examine
quantitative data collected by survey research or live polling methods. They look for
trends, patterns, links between two components or datasets, and connections between
key relationships.
When a rise in one variable causes an increase in the other, the two variables have a
positive correlation. A negative correlation, on the other hand, indicates that when
one variable rises, the other falls, and vice versa.

25
26
 IV. DATA ANALYSIS

Quantitative analysis (QA), a kind of research used in finance, may be used to

determine the value of a financial asset, such as a stock or an option. Applications of
math and statistics are used to achieve this. While developing algorithmic trading
platforms and computer simulations, quantitative trading analysts, sometimes known
as "quants," use a number of data sources, including historical stocks and investment
price data. Using the information from these computer models, investors evaluate
potential investment opportunities and create what they consider to be a profitable
trade strategy. With this trading strategy, you will often get thorough guidance on
how to start and exit transactions as well as on how much risk to take on and how
much potential gain to expect. Using quantifiable data and indicators to help investors
make wise investment decisions is the goal of quantitative economic information.

4.1 Descriptive Statistics

Table 4. 1 Descriptive Statistics (Shinghai Stock Exchange)

Variabl OBS Mea Std. Min Max

e n
CH 150 1.521 .634 -11.511 16.542

CPI 150 0.561 .152 1.568 13.25

NWC 150 .415 .281 1.171 2.120

MTB 150 .257 .124 .034 .750

LEV 150 3.354 .512 1.001 4.321

AGE 150 2.571 .381 1.021 14.251

The above table is showing the descriptive statistics of Shinghai stock

exchange. The maximum value and lowest value of the observations, their
mean value, their standard deviation, and the number of observations are all
included in the descriptive statistics of the data displayed in the aforementioned
table 4.1. CH has 150 observations, with a minimum value of -11.51, meaning it
has the lowest possible value of business cash holding, and a maximum value of
27
16.54, meaning it has the greatest possible value of company cash holding. The
standard deviation shows that each observation deviates from the mean by .634
units as a result.

The average corruption index for this data was 0.561 units, according to the
CPI's mean value of 0.561. Its smallest value, 1.57, is equal to the CPI's minimum
range, while its greatest value, 13.25, is equal to the CPI's maximum range for the
data set. Between the mean and each individual value of the corruption index,
there is a difference of 0.152 units.

The maximum value of LEV, on the other hand, is 4.32, which is the greatest value of
LEV in the data set, while the lowest of Leverage is 1.001, indicating the highest data value.
The average of all observations indicates the mean of all the data set's findings, which is 3.35
units. The standard deviation, which is.124, on the other hand, demonstrates that each value
of banking leverage deviates from of the mean by a factor of 0.512.

Table 4.2 Descriptive Statistics (Pakistan Stock Exchange)

Variabl OBS Mean Std. Min Max

e
CH 150 3.46 .53 -5.721 14.531
4

CPI 150 7.214 .62 3.521 10.520

1

NWC 150 1.621 .28 1.171 2.120

1

MTB 150 .257 .12 .034 .750

4

LEV 150 4.354 .51 1.001 4.321

2

AGE 150 2.571 .38 1.021 14.251

1

28
 The descriptive analytics of the data shown in the aforementioned table 4.2
include the highest and lowest values of the observations, their mean values, their
standard deviations, and the total number of observations.CH has 150 observations,
with a minimum value of -5.72, meaning it has the lowest possible value of business
cash holding, and a maximum value of 14.53, meaning it has the greatest possible
value of company cash holding. Its mean is 3.46 and worth of all cash holdings as a
whole. The standard deviation shows that each observation deviates from the mean
by .534 units as a result. The average corruption index for this data was 7.21 units it
shows that PSX has a higher CPI as compare to SSE. Its smallest value, 3.521, is
equal to the CPI's minimum range, while its greatest value, 10.52, is equal to the
CPI's maximum range for the data set. Between the mean and each individual value
of the corruption index, there is a standard deviation of .621 units.

Contrarily, the minimum value of NWC in the data set is 1.171, and the
maximum value of NWC in the data set is 2.120, making up the two extremes of
NWC. The average of all observations indicates the mean of all the data set's
observations, which is 1.621 units. The standard deviation, which is.124, on the other
hand, demonstrates in which each value for NWC deviates from of the mean by a
factor of.124.

4.2 Multicollinearity
Table 4. 3 Variance Inflation Factor

29
 The multicollinearity of the model is connected to the data in table 4.3 above.
Multicollinearity is an issue that typically occurs when there are several independent
variables, some of which may be negligible or of the signs, with outcomes that may
even be the exact opposite of those that are statistically significant. Therefore, make
sure that multicollinearity is enabled while interpreting the regression analysis
findings.

The table above displays the variance inflation factor values. Since each
independent variable only appears in our model in less than 10 occurrences,
multicollinearity is not a problem. It proves that the model doesn't have the issue.
There is no issue with multicollinearity in the instance of NWC because the VIF
value is 1.04 times and the tolerance is close to 0.957. Additionally, the CPI has
inflation with a variation inflation factor of about 1.04 times, showing that
Multicollinearity is not a problem. Age and LEV both have VIFs of 1.01 and 1.01,
showing that they are not related to the Multicollinearity issue..

4.3 Correlation
Table 4. 4 Correlation Matrix

The correlation chart in table 4.4 above shows the strength of the relationships
between all variables, independent or dependent. This either indicates that the

30
variables are believed to be independent or that the correlation does not include the
outcome variable.

The results indicate a strong relationship between the CPI and CH. At the 0.05
level of significance, the correlation coefficient is 40.91%, which is very significant.

The results demonstrate a statistically significant relationship between NWC

and CH. When expressed as a percentage, the degree of link has a magnitude of
49.35% and is inverse.

It was shown that when the MTB was discussed and applied to CH, there
was a 33.96% degree of linkage. Given that the p-value is 0.000, this discovery is
likewise statistically significant at the 0.05 level. The fact that this correlation was
found to be inverse indicates that MTB has a detrimental influence on CH.

Leverage and CH are correlated to a degree of -0.2131. It reveals a 21.31%

correlation between the two. However, both the relationship's strength and its inverse
nature are relatively weak. This suggests a bad relationship between the two.

This result is statistically significant since the AGE coefficient of correlation

demonstrates a positive link with CH of 62.05 percent. LEV and CH have the
opposite relationship. The degree of link between the two variables is 21.31, which
is a bad form of relationship.

4.4Panel Diagnostic Test

Panel data—often referred to as longitudinal data—in the fields of economics

and finance are observational techniques used across time for the same set of cross-
sectional units (e.g., individuals, firms, portfolios, governments, or nations). They
often provide insights and knowledge that time or passing information alone cannot.
Taking panel data as an example, controlling non - observable person- and time-
specific effects that may be connected to the identified explanatory factors leads to a
more precise estimation of the relevant parameters. Examples: Analyzing public
policy and testing economic theories both call for the usage of structural linkages.
Most economic connections are by their very nature dynamic. Dynamic panel data
31
models have drawn more attention from writers in the literature (Alvarez & Arellano,
2003; Arellano & Bond, 1991; Hahn &Kuersteiner, 2002; Kiviet, 1995). The
assumption of a linear functional form for dynamic profound structural interactions is
standard practise, and linear models of panel data are supported by a substantial body
of the well econometric theory. The summary of the penal diagnostic test is as
follows:

32
Table 4. 5 Summary of Panel Diagnostic Test

The research employed panel data since the data included observations across
time on numerous cross sections. Panel data may be thought of as a one-dimensional
special case of data from time series and cross-sections. Three tests—the Chow test, a
Bresch-Pagan test, and the Hausman test—were run on the panel data model, as
indicated in the previous table. Only the Chow test implies a random effect; the other
two tests, the Hausman and the Breusch Pagan test, do not. As a result, a decision
random effect model was used for the punitive data. As shown in the table, the
random effect model is a suitable test as according Breusch-Pagan and the Hausman
test.

4.5Regression Analysis
Entrepreneurs, statisticians, and economists frequently employ regression
analysis. Business owners utilize it as well. It determines or predicts how one item
may effect another using statistical formulae. Regression analysis, for instance, may
demonstrate how interest rates influence people's choices about asset investments.
Regression analysis is frequently used to determine how an employee's annual
earnings, such as their salary, are influenced by their education and job experience.

Regression analysis is a tool that business managers may use to determine

how their advertising budget impacts the bottom line of their organization. A
company owner can demonstrate the positive or negative association between two
factors using this strategy.

33
Table 4. 6 Regression Analysis

CH Coef. Std Err. t Sig.

CPI .501 .121 4.140 .000

NWC .913 .281 3.249 .001

MTB .097 .035 2.771 .004

LEV .165 .146 1.130 .259

AGE 2.64 .176 1.496 .135

R2 = 0.084 F-Stats= 24.71 (P-Value= .000)

The result of table 4.5 depicts that corruption has positive and significant
effect on corporate cash holding. According to the table above, there were 1800
observation in total for the data. The overall R square is 0.084, indicating that the
dependent variable varied by 8.4% as a result of varying independent factors,
including, among others, Net working capital, Market to book ratios, Leverage, Age,
and Corruption Index. In addition, it was found that the Included variables
contributed 56.14 percent of the Dependent variable's value.

The model's overall significance has been assessed to be significant since the
F-Stats value is 24.71 and the P-value is 0.000. The model seems to be extremely
significant since the F-statistics value is greater than four (4) and the p-value is even
less than 0.05.

If we focus on the individual variables, we can see that the P-value for each of
the independent variables—corruption index, Net working capital and market to book
ratios—is less than 0.05, indicating that they are all highly significant in relation to
cash holding. Additionally, the t statistic's value is larger than two, indicating that the
explanatory factors (such as the corruption index, net working capital, market-to-
book ratios) are highly significant in relation to the dependent variable (Cash holding-
CH). Only two independent variables leverage and age were found in significant
towards Cash holding because they have p-value greater than 0.05, as well as the
statistics is less than two which reflects that both the variables are insignificant and
34
have no effect on Cash holding.

The correlation between the corruption index's size and the CH is positive,
suggesting that a higher corruption index may lead to a cash holding for the company.
Therefore, the corporation benefits from having a regular CPI. The corruption index's
magnitude is 0.501, meaning that a change of one unit in the corruption index will
result in a rise of one unit in the cash holding.

Additionally, the net working capital has an advantageous link with value
development and has an effect on cash holding. It demonstrates how a company's
ability to store more cash will increase its net working capital. NWC's magnitude is
larger than the other variables' magnitudes According to the value of 0.913, a change
of one unit in NWC will cause a change in the dependent variable equivalent to 0.913
units inside the independent variable.

The market-to-book ratio has a p-value below 0.05 and a t-statistic over two.
It illustrates how important the market to book ratio is for cash holding. Its
coefficient, which is 0.097, is positive. It shows that an increase in cash holding will
result from a one-unit rise in market to book.

4.6 Discussions:

The results presented in Table 4.5 indicate that corruption has a positive and
significant effect on corporate cash holdings. The analysis was based on a dataset
comprising 1800 observations. The overall R-squared value of 0.084 suggests that
approximately 8.4% of the variation in the dependent variable (cash holding) can be
explained by the independent factors included in the model, such as net working
capital, market-to-book ratios, leverage, age, and corruption index. Furthermore, the
included variables collectively account for 56.14% of the variation in the dependent
variable.

The overall significance of the model was assessed using the F-statistic, which
yielded a value of 24.71 with a corresponding p-value of 0.000. This indicates that the
model is highly significant as the F-statistic exceeds the critical value of 4 and the p-

35
value is less than 0.05, implying that the observed results are unlikely to occur by
chance.

When examining the individual variables, it can be observed that the p-values
for each independent variable—corruption index, net working capital, and market-to-
book ratios—are all less than 0.05, indicating their high significance with respect to
cash holding. Additionally, the t-statistic values for these variables are greater than
two, further supporting their significant explanatory power in relation to the
dependent variable. In contrast, the variables leverage and age were found to be
insignificant with p-values greater than 0.05 and t-statistic values less than two. This
implies that these variables have no significant effect on cash holding.

The positive correlation between the corruption index and cash holding
suggests that higher levels of corruption may lead to increased cash holdings by
corporations. Therefore, companies benefit from maintaining a regular Corruption
Perception Index (CPI). The magnitude of the corruption index coefficient is 0.501,
indicating that a one-unit change in the corruption index corresponds to a one-unit
increase in cash holding.

Furthermore, net working capital (NWC) demonstrates a favorable

relationship with value development and exerts an impact on cash holding. The
coefficient for NWC is larger than that of other variables, with a magnitude of 0.913.
This implies that a one-unit change in net working capital leads to a change in the
dependent variable (cash holding) equivalent to 0.913 units.

The market-to-book ratio also exhibits significance with a p-value below 0.05
and a t-statistic greater than two. This highlights the importance of the market-to-
book ratio in explaining cash holding. The positive coefficient of 0.097 indicates that
an increase in cash holding is associated with a one-unit rise in the market-to-book
ratio.

In summary, the results suggest that corruption, net working capital, and
market-to-book ratios have a significant impact on corporate cash holdings. Higher
levels of corruption, greater net working capital, and higher market-to-book ratios are
36
associated with increased cash holdings. On the other hand, leverage and age were
found to be insignificant in relation to cash holding, indicating that they do not have a
notable effect on this variable.

37
 V. SUMMARY, CONCLUSION AND
RRECOMMENDATIONS

5.1 Summary

Test findings on a model known as "cash holding" are intriguing. Due to

varying rates of change and the magnitude of such changes, they vary between
sectors. Based on the case studies, there may be significant value variations between
companies when a sector is through a great deal of change and there is a wide range in
how each company is prepared to handle that change. The approach helps companies
to plan when taking into account societal trends.

They contend that companies must think creatively and consider how they
may help resolve social and environmental problems as well as how these issues may
influence their current and future competitiveness. Businesses may take a systemic
stance when they study social changes from the outside in. Banks and other
companies may use the idea in many different ways. The same is true for
organizations, who might utilise it to benefit their own business divisions.

They may benefit from the model in a variety of ways as they create and
enhance their sector-specific analyses. Also, it makes it simple for investors and
lenders to compare the businesses they lend the money to. Those who pay attention to
(lack of) long-term value potential may be eligible for loans and investments. In such
case, banks and lengthy investors may adopt our approach. They may then divide the
money amongst the winners and losers.

The opportunity to include model components into one's own invention was
also provided by Dimson, Karakaş, and Li (2015). This will increase the value of the
item. In these ways, a career in finance helps hasten the shift to an eco-friendly way of
living. would be able to achieve its main goal, which is to provide people money
within the society system, if it had that (Schoenmaker and Schramade, 2019).

38
5.2 Conclusion

Our methodology ultimately offers regulatory bodies new suggestions for

improving the situation. Selling holdings immediately may help reduce losses since
prudential restrictions are now based on market behaviour. Under such arrangement,
liquid investments need less capital to begin. It is inconsistent with our model. To
assist them in making the switch to novel company structures and products that really
are lucrative and beneficial, financial institutions establish long-term collaborations
with business partners in a variety of research fields.

Favourable to the company's worth. More significant than how quickly

businesses may be sold are a comprehensive transition analysis and risk management
processes. This is due to the fact that these Future cash flows are impacted by factors,
which in turn influence the amount of capital required. Senior managers must have a
long-term perspective, be able to predict how culture will evolve over time, and come
up with solutions to transform the business now to be ready for these changes if a firm
is to succeed in the long run. Companies use a method known as a "transition route"
to restructure their organizational structure in order to adapt to changing societal
norms, take advantage of commercial possibilities, and safeguard themselves against
risks.

According to Geels and Schot, this is a "transition route" (2007).Many

businesses struggle to grasp long-term value development and focus. This typically
happens as a consequence of needing to fulfil the needs and expectations of investors,
customers, and other notable people in the near term.

In the long run, this COVID-related slowdown may make it harder for
companies to make investments, making it further harder to convince them to do so
(Hepburn et al., for instance), such as by making their goods more environmentally
friendly but still being able to exist in the near term.2020).

39
40
 5.2 Recommendations

Based on the aforementioned conclusions, the following suggestions are made

for non-financial firms listed on stock exchange market regarding the computation of
the cash holding ratio:

Companies shouldn't, in the first place, have more money available than
assets. Second, for firms with a higher cash holding ratio than necessary, it's crucial
to reduce the ratio in order to attain the appropriate ratio. The ideal range for the cash
holding proportion should be in the below order to guarantee and enhance the
performance of the company. To accomplish this objective, it is required to determine
the variables that affect the desire to store cash, which calls for establishing special
rules to alter the cash holding ratios to make it more appropriate for each unique set
of businesses.

Based on this idea, we will look at the variables that affect each group of
firms' motivation to keep cash at each cash holding rate level.

The results from the following study should make it easier for us to determine how
much cash to keep on hand to increase a company's performance and worth.
According to our research, political expropriation has an influence on cash policy,
leverage, and effective corporate taxation, all of which have an impact on how much
an investor will pay for a particular investment and reduce the value of their
company.

Our findings thus provide fresh insight into the microeconomic implications of
political corruption at the corporate level. Our research suggests that it is crucial for
countries, especially rising ones, to invest in anti-corruption initiatives and the fight
against official corruption. One advantage of the current Chinese pro effort is that it
will enable businesses to make dood financial choices.

41
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