How did the COVID-19 pandemic affect Corporate Cash Holdings Determinants? An Applied Study on Saudi Arabia Firms

Abstract

The COVID-19 pandemic has introduced substantial uncertainty and economic disruptions, prompting numerous firms to increase their cash reserves as a significant advantage to enable effective management of exogenous shocks. Using a sample of 120 non-financial firms listed on the Saudi Stock Exchange between 2012 and 2022, we examine the determinants of cash holdings. By dividing the sample into two sub-periods: pre-Covid and under Covid and applying the panel data approach, the results show a significant difference between the determinants of cash holdings of the two groups of firms. During the COVID-19 pandemic, cash holding has increased with firm size, cash flow, Cost of Capital, and net working capital, while it has decreased with dividend payment, and return on invested capital. The research provides support for the pecking order theory, indicating that Saudi firms have maintained relatively stable cash management policies and remained unaffected throughout the pandemic. This study sheds light on the supportive role of the Saudi government in assisting firms facing liquidity challenges, offering a comprehensive understanding of the subject. Furthermore, it contributes to the existing literature on corporate finance by exploring new factors that drive cash management decisions.