The Relationship between Cash Holdings and Corporate Performance: A GMM Approach with an Emphasis on Audit Quality and Firm Growth

Document Type : Original Article

Authors

1 Department of Accounting, University of Hazrat-e Masoumeh, Qom, Iran

2 Department of Accounting, Shahid Beheshti University, Tehran, Iran

3 Department of Accounting, University of Kurdistan, Sanandaj, Iran

Abstract

Cash holdings are a crucial aspect of financial management and can significantly influence a company's performance, which is affected by various factors. This study aims to explore the relationship between cash holdings and performance, focusing on the roles of audit quality and growth among companies listed on the Tehran Stock Exchange. The research utilized a correlational design and relied on secondary data obtained from the financial statements of these companies. This study applied the Generalized Method of Moments (GMM) as the main econometric framework to test the research hypotheses . Additionally, the correlation analysis was conducted to examine the interrelationships among the variables of interest. The statistical population comprised all firms listed on the Tehran Stock Exchange over the period from 2013 to 2023 , resulting in a final dataset of 1,870 firm-year observations. The findings revealed a positive and significant relationship between cash holdings and audit fees, as well as financial performance indicators such as the market value to book value ratio (MBVR) and return on assets (ROA). Additionally, the interaction between audit fees and cash holdings demonstrated a positive and significant relationship with both MBVR and ROA. Cash holdings displayed an inverse U-shaped (concave) relationship with firm performance, which was more pronounced in companies with higher audit quality. Furthermore, firm growth impacted the relationship between cash holdings, firm performance, and the moderating effect of audit quality. These findings underscore the importance of considering firm performance, audit quality, and growth when making decisions regarding cash holding policies.

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History

  • Receive Date: 26 March 2025
  • Revise Date: 31 July 2025
  • Accept Date: 15 December 2025
  • Publish Date: 23 August 2025

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