Social and environmental contributions, board size and cash holding: The case of energy firms

Abstract

The level of cash holding has important impact on firm operations, which maintains the desire to study the determinants of cash holding to the benefits of the firm. This study seeks to examine the individual effect of corporate social responsibility (CSR), i.e., activities to protect environmental, social, customer and labor well-being, and board size on cash holding, as well as their interaction on this factor for a sample of listed energy firms in Vietnam. Our results show that CSR and board size both negatively affect cash holdings, implying that these two factors act as effective mechanisms to curtail excessive cash holding, which may harm firm performance as suggested under agency theory. An interesting finding from our research is that if both CSR and board size are negatively related to cash holdings, the interaction of these two factors is positively related to cash holdings. An implication from this finding is that firms with proper governance characteristics could pay less attention to agency cost and information asymmetry, and in fact show more concern about precautionary motives when it comes to cash holding decisions.