The Moderating Role of Anti-Corruption in the Link Between Cash Holdings and Firm Performance in Thai Listed Firms

Abstract

Background and Objectives: The anti-corruption campaign in Thailand promotes transparency and accountability. Although firm participation is voluntary, those who join can receive official certification confirming they are unlikely to engage in corrupt activities in any form. This participation may serve as an indicator of a strong corporate governance mechanism within a firm. However, prior research has largely overlooked the role and implications of anti-corruption efforts in the Thai private sector. Thailand provides a unique institutional setting in which anti-corruption certification is formally announced and monitored by the market regulator. This study explores the moderating effect of anti-corruption on the relationship between cash holdings and firm performance in the Thai context. The objective of this study is to gain insights into cash holdings and anti-corruption performance in emerging market countries. Methodology: The analysis is twofold. First, it investigates the role of anti-corruption in firm value. Second, it examines anti-corruption information from a capital market perspective. This study uses a direct measurement of firms’ anti-corruption performance based on regulator-recognized certification, enhancing measurement reliability. This study employs the Generalized Method of Moments estimator for robust standard errors in a two-stage least squares estimation. Main Results: Both cash holdings and anti-corruption performance have a significant positive influence on firm performance. This indicates that firms retaining financial flexibility through adequate cash reserves, combined with a commitment to strong ethical practices, are more likely to achieve superior operational and financial outcomes. The results show that anti-corruption enhances the positive impact of cash holdings on firm performance, highlighting its role as a governance mechanism that shapes the value of liquidity. This suggests that the benefits of holding cash are greater in firms that demonstrate robust anti-corruption practices. Discussions: An anti-corruption strategy can serve as a mechanism to mitigate the principal-agent conflict of interest. Additionally, anti-corruption can reduce information asymmetry within the firm. Firms with strong ethical governance derive greater value from their cash reserves, possibly because effective governance reduces the risk of misuse of funds. This interaction suggests that the combination of financial resources and ethical governance improves overall firm value beyond the individual contributions of each factor. The results can be applied not only to Thailand but also to other countries, as anti-corruption activities must be promoted among businesses around the world. This should help businesses in each country to operate more smoothly and improve its performance. Conclusions: Effective governance enhances the productive use of cash by reducing risks like mismanagement or agency conflicts. This study advances the existing literature in that it empirically investigates the moderating effect of anti-corruption on the cash management of the firm. This study provides novel evidence on how formal governance mechanisms interact with corporate liquidity decisions. Although this study uses anti-corruption scores from the stock market authority, these may not fully reflect actual anti-corruption performance. Future research may explore more accurate measurement methods and examine the impact of anti-corruption on outcomes like bankruptcy, debt covenants, and optimal cash holdings within broader corporate governance frameworks.