The Moderating Effect of Firm Characteristics on the Association Between Accounting Conservatism and Cash Holdings

Abstract

Recent studies are interested in the determinants of cash holdings (CASH), some of these studies focus on conservatism, as one of these determinants. In light of a debate on the nature of the association between conservatism and CASH, this paper discusses and investigates the answers for three questions, the first question about the direct association between conservatism and CASH, the second question about the moderating effect of firm characteristics on this association, the third question about the effect of adopting Egyptian Accounting Standards (EAS) since 2016 on the last association. This paper focuses on Egyptian listed firms in Egyptian Stock Exchange (EGX), especially EGX 100, for six years period from 2013 to 2018 for 11 main sectors, 125 firms and 703 unbalances panel data observations. The findings indicate that (1) conservatism has a negative effect on CASH, (2) only firm size has a moderating and positive effect on the association between conservatism and CASH, (3) firm leverage, firm growth opportunity, and firm managerial ownership do not have a moderating effect on the last association. (4) Adopting EAS in 2016 by Egyptian listed firms gives the management of these firms' suitable chances to control CASH using its association with conservatism.