Cash Holdings in Shariah-Compliant Firms

The\r\nrestrictions of a shariah-compliant index could have consequences for corporate\r\nfinance. This research investigates the difference in cash holding policies\r\nbetween shariah-compliant and conventional firms in the Indonesia capital\r\nmarket. Our empirical results\r\nsuggest that a shariah-compliant firm holds significantly less cash compared to\r\na conventional firm.\r\nThe empirical finding still maintains after excluding top performers in the\r\nmarket and after controlling for other proxies of cash holdings and shariah-compliant\r\nfirms. Our results suggest that the reputation benefit from a shariah-compliant\r\nindex could outpace the cost of restrictions under a lenient shariah regulation\r\nenvironment.