Investment Committee, Corporate Cash Holdings and Corporate Life Cycle

• Author: Baban Eulaiwi,Ahmed Al‐Hadi,Khamis Hamed Al‐Yahyaee,Syed Mujahid Hussain
• DOI: http://doi.org/10.1111/irfi.12240
• Published date: 01 September 2020
• Date: 01 September 2020

Investment Committee, Corporate

Cash Holdings and Corporate

Life Cycle

BABAN EULAIWI

*

,AHMED AL-HADI

*,†

,SYED MUJAHID HUSSAIN

†,‡

AND

KHAMIS HAMED AL-YAHYAEE

†,‡

*

School of Accounting, Curtin University, Perth, Western Australia, Australia

†

Department of Accounting, College of Economics and Political Science, Sultan

Qaboos University, Muscat, Oman and

‡

Department of Economics and Finance, College of Economics and Political Science,

Sultan Qaboos University, Muscat, Oman

ABSTRACT

We investigate the association between voluntary formation of board investment

committee (IC) and corporate cash holdings of nonfinancial firms over the cor-

porate life cycle stages for a large sample of Gulf Cooperation Council firms dur-

ing 2005–2016. We find that IC increases corporate cash holdings in growth and

maturity stages of firm, compared to introduction, shake-out, and decline stages.

These results have important implications for investors, policy makers, and regu-

lators. Our findings are robust to various econometrics specifications.

JEL Codes: G30; M41; G38

Accepted: 26 September 2018

I. INTRODUCTION

Large cash holdings by corporations have aroused significant interest among

researchers and public alike. A recent article by New York Times magazine pon-

ders over “why are corporations hoarding trillions?”

1

The article suggests that

American businesses collectively hold $1.9 trillion in cash. In this context,

some important questions that arise from this article are: What factors influ-

ence the cash holdings by corporations? And whether these cash holdings vary

during the corporations’life cycles?

In this article, we attempt to address these questions from the corporate gov-

ernance perspective. Specifically, we investigate the effects of board’s Invest-

ment Committee (thereafter IC) on cash holdings over the life cycle of

nonfinancial public firms of the Gulf Cooperation Council (GCC) countries.

2

1 https://www.nytimes.com/2016/01/24/magazine/why-are-corporations-hoarding-trillions.

html?_r=0

2 GCC countries constitute Kingdom of Saudi Arabia (KSA), Oman, Qatar, Kuwait, United Arab

Emirates (UAE), and Bahrain.

© 2018 International Review of Finance Ltd. 2018

International Review of Finance, 20:3, 2020: pp. 757–769

DOI: 10.1111/irfi.12240