Cash Holdings and Corporate Profitability: Some Evidences form Jordan

Abstract

Copyright © 2014 ISSR Journals. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. ABSTRACT: The purpose of this paper is to examine the effect of cash holdings level on firms ’ profitability. Three simple regression models were used to examine the relationships between cash holdings and firms ’ profitability using a panel data of 65 non-financial firms listed in Amman Stock Exchange (ASE) during the period from 2000 to 2011. The results showed a positive significant relationship between cash holdings and profitability. This means that a good financial performance of the firm is an outcome of vast corporate cash holdings. This positive relationship reflected the beliefs of Jordanian firms’ managers that the absence of effective liquidity management will cause cash shortages and will result in difficulties in paying obligations, which negatively affected the firm’s profitability. This study contributes to the practical world. It helps firms in the markets of emerging countries in general and in ASE in particular, manages their liquidity and cash. Furthermore, the study helps firms hold the percentage of cash, which lead to efficient financial performance. This study encourages the future researches to find out the suitable strategies related to cash holdings.