Gusau Journal of Accounting and Finance (GUJAF) Vol. 1 Issue 2, October, 2020 ISSN: 2756-665X A Publication of Department of Accounting and Finance, Faculty of Management and Social Sciences, Federal University Gusau, Zamfara State –Nigeria Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 1 EFFECT OF FIRM DYNAMISM AND FIRM CHARACTERISTICS ON CASH HOLDING OF LISTED MANUFACTURING FIRMS IN NIGERIA Ibrahim Lawal Bursary Department, Federal University Gusau, Zamfara State, Nigeria. Lawal6492@yahoo.com +2348038485745 Umar Farouk Abdulkarim Department of Accounting and Finance, Federal University Gusau, Zamfara State, Nigeria. elfarouk105@gmail.com +2348069393824 Sanni Olawale Nurudeen Accounting Department, ABU Business School Zaria, Kaduna State walebunmi714@gmail.com Abstract Cash holding decision is one of the most significant decisions taken by the financial managers of any manufacturing firms. The decision not only depends upon the theoretical view but also the firm–specific variables and Firm dynamism variables of the economy. This paper aims at shedding light on the empirical effect of Firm dynamism and firm characteristics on corporate cash holding. The population of the consist of 51 manufacturing firms listed on the Nigeria Stock Exchange, while the adjusted population of 35 firms was arrived based on availability of data. Correlational research design was adopted. The study was anchored on pecking order and resource dependence theory. Multiple regression was employed to analyse data extracted from annual report of selected manufacturing firms in Nigeria from the period of 2012 to 2019. The result of the findings shows that investment opportunity has positive and significant relationship with corporate cash holding. However, negative and significant relationship was found between female leadership, leverage and corporate cash holding. In line with the findings, the study therefore recommends that, to enhance the effectiveness of boards and the efficient use of cash, firms with fewer women on their corporate boards now should look to add more female directors to their boards. Managers should also rationally presume that a firm with high quick asset replacements, high debt, and equity expense should maintain lower cash holdings. If for the unusual object, a firm with high quick asset delegates, high debt, and equity expense has high cash holdings, this force is a flag of a potential agency conflict. Managers should avoid holding excessive cash reserves as this might attract scrutiny from the capital markets. Keywords: Cash Holding, Agency Problem, Firm Dynamism and Nigeria mailto:Lawal6492@yahoo.com mailto:elfarouk105@gmail.com mailto:walebunmi714@gmail.com Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 2 1. Introduction The manufacturing sector is considered one of the fundamental engines of the modern economy. The sector serves as a vehicle for the production of goods, the generation of employment and the improvement of income. Hence, it is described as the heart of the economy (Eze & Ogiji, 2013). In developed economies, the manufacturing sector contributes a significant part to economic growth. For example, in the US, the manufacturing sector contributed 11.7% to economic growth. In Japan, the manufacturing sector contributed 27.2% to economic growth. In the UK, the manufacturing sector contributed 25% to economic growth. In China, the manufacturing sector contributed 40% to economic growth. In developing countries, specifically Nigeria, the manufacturing sector contributed 2.54% to economic growth. This percentage is far below what is happening in rich and industrialized nations. The manufacturing sector has been relatively low (CBN Annual Report, 2010). To learn more about these challenges, a report on the Nigerian manufacturing sector from the National Bureau of Statistics (NBS) in 2014 put them as follows: inadequate and epileptic supply variability of agricultural inputs (NBS, 2014). The report also noted that if the current lockdowns in most parts of the world persist for another two months, about $ 2.23 trillion in trade from Nigeria would be lost. Ultimately, this could lead to domestic shortages (Nairametric, 2020). Also, the country may not be able to meet the demand for raw materials and other commodities. And concomitant bottlenecks would make a significant dent in manufacturing operations and other cash receivables (Nairametric et al., 2020). Similarly, despite the promise of some of the Nigerian oil and gas companies listed on the Nigerian Stock Exchange (NSE) and the London Stock Exchange (LSE), securing increased gas revenues, coverage of the low oil prices and a good cash situation, the company reported operating losses of $ 77 million in the first quarter of 2020, compared to an operating profit of $ 32.5 million in the first quarter of 2019, which implies a decrease of 336.9 percent. Besides, beyond this, there is a load of unsold inventory given the shutdown of most global economies. Given this scenario, the liquidity of most Indigenous oil concerns has already been severe as a result of the loss of cash flow due to the global energy crisis caused by the pandemic. This disruption has dire consequences for the local players in Nigeria’s oil and gas industry, who are fighting to maintain operations and margins (Thisday, 2020). Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 3 The reality is that most of the listed companies have failed to impress investors. They are either reporting weak earnings, bad corporate governance, inconsistent dividend/bonus pay out or poor investor relation handling (Vanguard,2020). Even flour Mills of Nigeria Plc, the country's biggest miller by market value, planned to issue as much as N40 billion in bonds and was also considering a rights issue to enable it to deal with funding challenges arising from a scarcity of naira, its Managing Director, Paul Gbededo, said (Thisday, 2017). As a matter of concern, cash flow is very important to the going concern of the manufacturing firms. This is very crucial, the reason being that cash and cash equivalent are liquid assets meant to increase shareholders value by investing in profitable engagements, drastically minimize cost, and the peculiarity of cash not overlooked. Cash holding decisions are some of the most important decisions to make in any corporate firm. Adetifa (2005) observes that the costs of cash holding are of two categories: cost of excessive cash holding such as opportunity cost of interest foregone, costs of purchasing power among others and cost of inadequate cash holding including cost of corporate image, loss of cash discount on purchases and loss of business opportunities. Cash holding has been studied from several angles; one of these angles was the determinants of cash holding, where firms’ characteristics were studied in order to explain how and why firms hold cash (Kim, Mauer, & Sherman 1998; Schnure, 1998; Faulkender, 2002; Ferreira & Vilela, 2004; Ozkan and Ozkan, 2004; Almeida, Campello & Weisbach 2004; Chen and Mahajan, 2010; Alzoubi, 2013). According to trade-off theory and pecking order theory, various firms’ characteristics such as growth opportunities, net working capital, liquid assets, leverages and size are determinant of cash holding(Lawrencia, et al., 2012) Another angle was the value of cash holding; many researchers investigated the value of the cash held by firms and how that cash contributes towards the value of firms. Holding cash when the internal mechanism is weak and shareholders are not protected, the value of cash held by firms is low due to the free cash flow problem (Jensen, 1986), meaning the value of each amount invested in cash could be valued at premium or discount based on the business environment and the situation surrounding firms (Pinkowitz et al., 2006; Faulkender and Wang, 2006; Dittmar and Mahrt-Smith, 2007; Kalcheva and Lins, 2007; Harford, Mansi, & Maxwell 2008; Fresard and Salva, 2010; Haw, Hu & Zhang, 2011; Tong, 2011; Alzoubi, 2013; Alzoubi, 2016). Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 4 Subsequently, empirical review on the relationship between cash holdings and corporate governance that have focused on developed and developing economies is inconclusive. For example, in Belgium, Orens and Reheul (2013) examine the idiosyncratic manager specific influence on SMEs cash holdings; Amess, Banerji, and Lampousis (2015) consider the causes and consequence of corporate cash holdings in the United States; the Taiwan context (Kuan, Li & Chu, 2011) examines the relationship between corporate governance and cash policy within family-controlled firms; the Vietnam context (Thi & Nhan, 2016) presents a review of cash holdings and corporate governance mechanisms and Al-Najjar and Clark (2017) explore the relationship amid cash holdings and internal, external governance mechanisms in Middle East and North African countries. Aslam, (2019), examined relationship between cash holding and corporate governance structure; Evidence from KMI 30- and KSE 100-Indexed Firms in Pakistan. However, there has been a dearth of literature in Nigerian economy. In Nigeria context, (Lawrencia Olatunde Ogundipe, Sunday Emmanuel & Ogundipe, 2012) focused on firm characteristics (using net working capital, firm size, leverage, return on asset, cash flow and investment opportunity) and cash holding evidence from an emerging market. In light of the above, therefore, this study sought to enhance the psychometric power of the variable (R&D) by taking into cognizance the measurement of a firm specific characteristic. However, there has been a dearth of literature in the Nigerian economy regarding firm-specific characteristic and cash holding in the manufacturing sector. More so, to the best of author’s knowledge and from the reviewed of prior pieces of literature, no work has been conducted on firm specific characteristic (using R&D) and cash holding in manufacturing firms, Nigeria. Most of the previous literatures did not pay much attention on R&D as factors that could influence cash holding decision of the organization. Furthermore, it has been found that there are scanty or no studies conducted to examine joint effect of firm dynamism (using female leadership and independence directors) and firm specific characteristics (using leverage, research and development, investment opportunity) on corporate cash holding of listed manufacturing firms in Nigeria. This study tends to fill this gap by examine effect of firm specific characteristics and firm dynamism on corporate cash holding of listed manufacturing firms in Nigeria from the period of 2012 to 2019. Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 5 The next section highlights literature review and hypotheses development, section 2 shows the methodological approach applied in this study, while section 3 presents the results and discussion of findings and finally conclusion and recommendations were provided in the last section. 2. Literature Review Recent work suggests three theoretical models that can help define which corporate cash-keeping decisions are made by the characteristics of the business: trade-off theory, pecking order, and free cash theory. Therefore, we highlight the results of previous empirical studies. 2.1 Pecking order theory The pecking order theory of Myers (1984) and Myers and Majluf (1984) asserts that to minimize asymmetric Information costs and other borrowing risks would be financed first by companies with retained earnings, followed by stable debt and volatile debt, and lastly by equities. Extending this principle to clarify the determinants of cash leads to the assumption that there is no optimal amount of cash, but that cash is seen as a bridge between remaining earnings and spending requirements. In this theory, the amount of cash will simply be the product of the options to finance and spend. Consequently, when existing operating cash flows are adequate to finance capital acquisitions, companies repay loans, pay dividends, and eventually raise cash. When retained earnings are inadequate to fund existing assets, companies use accumulated cash reserves and, if necessary, issue new debt and eventually issue shares as they reach their debt service capacity. Based on the pecking order theory, firms with larger investment expenses have less or no surplus from internally generated funds to invest in liquid asset reserves, and hence they hold less liquid assets (Opler et al., 1999). In the same vein, Bates et al. (2009) argue that if capital expenditures create assets that can be used as collateral, capital expenditures could increase debt capacity and reduce the demand for cash. 2.2 Recourse Dependence Theory Resource dependence theory (Pfeffer & Salancik, 1978) argues that, to survive, businesses depend on three external resources: advice and counsel, legitimacy, and communication. The external dependencies posit survival risks for businesses. In order to reduce the risks, resource dependence theory offers the rationale for the board’s role in providing critical resources and external linkages to the firm. In this context, the board’s influence on cash-holding decisions is Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 6 facilitated by its support and advisory roles as it requires counseling of management to efficiently deploy corporate resources (Hillman & Dalziel, 2003). More specifically, a corporate board necessarily provides a strong foundation in advisory, serving as a checks-and-balances mechanism to ensure that management acts in the best interests of shareholders (Haniffa & Cooke, 2005). Around the world, to protect shareholder interests, corporate governance codes (e.g., the Sarbanes–Oxley Act in the US) require that a board should be largely comprised of independent directors. The underlying concept is that the independent advisory of the board relies on the effectiveness of the independent directors. A board with fewer independent directors should be viewed negatively by stakeholders compared with a board with more independent ones. Over time, a body of literature examining the impact of board independence and diversity on various firm-level outcomes (i.e., dividend payout, firm performance) has provided positive findings (e.g., Brickley, Coles, & Jarrell, 1997; Chen Leung & Goergen 2017; Kim & Lim, 2010; Pombo & Gutiérrez, 2011). Therefore, stakeholders may reasonably suspect the effectiveness of the board if male directors (executive and independent directors) dominate the board. On the other hand, the presence of female directors on boards provides more deliberation for quality decision-making and avoids groupthink. For instance, Terjesen, Couto, and Francisco (2016) document that firms with more female directors have better firm performance. They further argue that female directors on the board play a different role than executive directors. 2.3 Agency Problem and Cash Holding The motives for holding cash are mainly categorized into operational requirements and the agency problem. The operational requirements for holding cash, also known as the precautionary motive, occur when cash holdings are seen as a means for saving transaction costs and for shielding against future funding and underinvestment risk (Bates, Kahle, & Stulz, 2009; Han & Qiu, 2007). The agency problem, which causes excessive cash holdings, arises due to the separation of ownership and control of firms. The liquid asset (cash) provides latitude to managers in terms of how and when to spend, which may also lead to private benefits extraction (Jensen, 1986; Malmendier & Tate, 2008; Masulis, Wang, & Xie, 2009). Managers maintain high cash levels to safeguard themselves against market discipline at the expense of shareholders, and to avoid external scrutiny by the financial press and analysts. Thus, cash holdings driven by the Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 7 agency conflict are a problem for firms (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 2000). The potential solution to the agency problem of excessive cash holdings is efficient monitoring by corporate boards (Fama & Jensen, 1983). Fama (1980) argues that a corporate board is an integral control mechanism to safeguard the interests of shareholders. Corporate governance quality, through board monitoring, impartial advice and oversight, plays a seminal role in influencing cash-holding motives (see, Dittmar & Mahrt-Smith, 2003; Harford, Ki & Zhao, 2008). Similarly, prior studies (Boubaker, Derouiche, & Nguyen, 2015) find that internal governance leads to influencing firm cash holdings and managerial decision-making. These studies concur that well-structured boards reduce the agency problem. Hence, the monitoring function of corporate boards plays a critical role in mitigating the agency problem of cash holdings. Empirical studies on gender diverse boards concur that female director’s monitor more actively and require accountability. For instance, Gul, Srinidhi and Ng (2011), and Adams and Ferreira (2009) find that female directors want more accountability and greater audit fairness in firms; thus women on boards are tough monitors (Chen et al., 2017). Gender diverse boards also help to avoid groupthink in corporate boards, thereby improving the quality of competitive discussion among board members (Gul et al., 2011), which leads to optimal decision- making. In the same vein, attributes such as monitoring and fairness can be traced back to women’s democratic and better leadership skills (Johnson & Eagly, 1990). Their ability for high-quality deliberations lies in their diverse experiences and unique workstyle (Cox, 1994; Daily & Dalton, 2003). Huang and Kisgen, (2013) investigate the different decisions in investment and financial issues between female executives compared with male executives. Moreover, female executives issue less debt than male executives. Likewise, Duong and Evans (2016) indicate that female managers prefer keeping cash than male. Hence, female directors enhance board capabilities in effectively performing monitoring duties. In the context of concentrated ownership, the presence of independent directors can strengthen the protection of minority shareholders, who have virtually no means of control over the firm (Kim et al. 2007). In this sense, Dahya, Dimitrov & McConnell (2008), argue that independent boards are particularly effective in environments where the risk of expropriating outside investors is greater. Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 8 Controlling shareholders should be less reluctant to reinforce board independence and are therefore more likely to increase their representation in the boardroom (Anderson and Reeb 2004). In this regard, Yeh and Woidtke (2005) show that firm value decreases with the proportion of directors representing the interests of controlling shareholders of Taiwanese firms. Sheikh and Khan (2015), investigated the impact of board attributes and insider ownership on cash holdings of non-financial firms listed on Karachi Stock Exchange (KSE) Pakistan during 2008-2012. Empirical results indicate that board attributes such as CEO duality, board size and board independence are positively related to cash holdings. In contrast, Boubaker et al., (2015) found that adoption of a two-tier board system is accompanied by fewer cash holdings, whereas firms with more independent and busier directors on the board tend to hold lower cash levels. Hence, based on the previous discussions, our hypotheses are stated as follows: H1 independence of the board of directors has no significant effect on corporate cash holding listed manufacturing firms in Nigeria H2 female leadership has no significant effect on corporate cash holding listed manufacturing firms in Nigeria 2.4 Firm Specific Characteristics and Cash holding Cash holdings are an essential part of the growth and survival of the business and receive a significant amount of interest from investors and financial analysts. Liquidity is measured as the ratio of cash and cash equivalents to net assets (Ferreira & Vilela, 2004; Opler, Pinkowitz L., Stulz & Williamson 1999). This relationship deviates from numerous factors such as the industry and the characteristics of the company. Nevertheless, some studies such as that of Guney et al. (2007) found a negative relationship in low levels of debt between cash and leverage, since debt increased the relationship. Further research in this area was provided by Magerakis, Siriopoulos, and Tsagkanos (2015) determinants of UK corporate cash holdings during the period 1980-2012. The global and long term phenomenon of corporate cash pilling has drawn significant attention from researchers. Similarly, this study aims at shedding light on the empirical relationship between cash holding and specific firm characteristics. The empirical findings suggest that cash holdings are positively related to investment opportunity, as R&D and market to book ratio. Cash ratio is Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 9 also positively related to industry cash flow volatility and negatively affected by cash flow, net working capital, capital expenditures, leverage, tax expenses, age and size. Pinkowitz, Stulz and Williamson (2013) argued that USA firms hold more cash after the crisis than firms with similar characteristics in the late 1990s. They found that for the period before the crisis to after the crisis, cash holdings increase most for highly profitable firms. Hence, based on the previous discussions, our hypotheses are stated as follows: H3 Research and development has no significant effect on cash holding of listed manufacturing firms in Nigeria H4 Leverages has no significant effect on cash holding of listed manufacturing firms in Nigeria H5 Growth opportunities has no significant effect on cash holding of listed manufacturing firms in Nigeria 3. Methodology The purpose of this study is to investigate the effect of firm-specific characteristics and firm dynamism on corporate cash holding. Thus, this study adopted the correlational research design. This design is informed by the research paradigm which is the positivism approach. There were 51 manufacturing companies quoted on the Nigerian Stock Exchange as at the date of data collection. The adjusted population is thirty-five (35) firms based on the availability of data. The annual report is the legitimate blueprint of any external and internal investor in making decisions. Hence, this report was explored to extract information on the explanatory construct (investment opportunity, leverage, research and development, female leadership and independence director) and the explained construct (corporate cash holding), respectively. Spanning from 2012 to 2019 being eight (8) years was duly scrutinized under this study. A technique of analysis called multiple regressions on the panel data is utilized. This is due to the suitable of this method for this study since the issue of linearity is fulfilled. Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 10 Table 3.1 Variable Measurement Variables Type Measurement Source Corporate Cash Holding DV It is quotients of cash and cash equivalents to book value of assets less Cash and equivalents. (Lawrencia et al., 2012) Independence director (Boubaker et al., 2015) Female leadership IV Percentage of women on board (Atif et al., 2019) Investment Opportunity IV Change in total assets scaled by previous year fixed assets (Lawrencia et al., 2012) Leverage IV The sum of long-term debt and debt in current liabilities divided by the book value of total assets (Barasa et al., 2018) Research and Development IV R&D expenditures/sales (Magerakis et al.,, 2015) Source: Author’s computation Model Specification The model is stated below: Thus, the regression could be presented in general as follows; Yit = β0 + β1X1it + β2X2it + βk Xkit+ eit … … … … … … … … … … … equation. 1 Where; Yi is the dependent variable; β0is constant of the model when all independent variables are said to be zeros. X1i, X2i and Xki are the independent variables of the model and “i” is individual company for the estimation and finally ei is residuals of the model. Therefore, the model of the study is expressed below; CCH = β 0 + β1BINDi+ +β2 FLi + β3IOi + β4LEVi +β5R&Di +Εit…….equation 2 Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 11 Where; CCH= Corporate Cash Holding BIND = Board Independence FL= Female Leadership IO = Investment opportunity R&D = Research and development ß0= Intercept; ß1 to ß5 = Coefficient of the independent variables; ß5 = Coefficient of the control variable; Є = Error term; it= Subscript for Panel Data 4. Data Presentation and Discussion In this section, data collected in the course of carrying out the study were presented and discussed. This section presents the descriptive statistics, correlation matrix and the inferential statistics. The hypothesis formulates for the study was tested to institute the effect of firm-specific characteristics on corporate cash holding. Table 4.1 Descriptive Statistics Variables Obs Mean Std. dev. Min Max CCH 280 0.0532 0.2186 0.0034 0.0809 BIND 280 0.220 1.450 0.000 0.500 FL 280 0.180 0.040 0.000 0.274 IO 280 0.1493 0.1822 0.0132 0.7876 LEV 280 0.3571 0.4264 0.1653 0.8241 R&D 280 0.0572 0.1533 0.0000 0.4312 CAPEX 280 0.0313 0.0342 0.0000 0.6324 Source: Summary of stata output Table 4.1 presented the analysis of both explanatory and explained variables using a descriptive statistics method of data analysis. It indicated that average of corporate cash holding (CCH) of the sampled manufacturing firms is 0.0532 approximately having maximum and a corresponding minimum of 0.0034 and 0.0809 respectively. The results also, reveal that standard deviation of 0.2186 indicates low variability across the listed manufacturing firms. The minimum and maximum board independence of the listed manufacturing firms in Nigeria within Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 12 the period covered were 0 and 50% respectively. This implies that some firms are yet to fully comply with corporate code of 2012, which stipulated that public firms should at least have one independent non-executive director. The average level of board gender diversity across the listed manufacturing firms is 18%, while deviation value of approximately 4% indicates that there is a low deviation of the data from the mean. The maximum and minimum board gender diversity of the listed manufacturing firms in Nigeria within the period covered were 27.4% and 0% respectively. Investment opportunity (IO) as measured using change in total asset scaled by fixed asset has mean value of 14.9% with corresponding standard deviation of 18.22% Based on value of standard deviation, it can be deduced that the growth opportunity is not tightly clustered around the mean of data under study, invariably the manufacturing firm’s investment opportunity (IO) is different from firm to firm. Moreover, the minimum value is 1.32% and 78.76% as maximum value thus; it has a large range of growth opportunity reading from the minimum and maximum values. In addition, the average value of leverage (LEV) of the sampled manufacturing firms is 0.3751, with the standard deviation of 0.4264 indicating high variation across the sampled firms. The minimum and maximum values are 0.1653 and 0.8241 respectively. The average value of research and development (R&D) is 0.0572, with the standard deviation of 0.1533. Table 4.2 Correlation matrix Variables (1) (2) (3) (4) (5) (6) VIF 1/VIF (1) CCH 1.000 (2) BIND 0.336 1.000 1.325 .755 (3) FL 0.502 0.310 1.000 1.289 .776 (4) IO 0.348 0.047 0.029 1.000 1.262 .792 (5)LEV -0.460 0.372 0.072 -0.015 1.000 1.212 .825 (6)RnD 0.214 0.330 0.325 -0.401 0.251 1.000 1.202 .832 Mean 1.26 Source: summary of Stata Output From the correlation matrix presented in table 4.2, it is observed that BIND, IO and R&D have positive correlation with CCH of selected quoted manufacturing Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 13 firms in Nigeria. However, probable implication arising from this result is that the variables have moderate sensitivity to CCH. In contrast, LEV and FL were found to have negative relationship with CCH. On the other hand, the relationship among the independent variables is not too strong to warrant problem of multicollinearity as the coefficient are less than 0.80 (Gujarati, 2004). To further consider the collinearity issues, this study conducted Variance Inflation Factor (VIF) test to quantify its severity in our model, where the variance factors of each variable is calculated. The results of the VIF test ranges from a minimum of 1.202 to a maximum of 1.325 which are all less than 10 hence the absence of collinearity among the explanatory variables(Hair et al., 2014).To further substantiate this claim, the mean VIF is 1.26, also confirming the absence of multicollinearity among all the explanatory and control variables of the study. Diagnostic Test Before the conduct of the final regression, this study conducted diagnostic analysis to maintain the un-biasness of the parameters as argued by wooldridge (2011). Among the test conducted in addition to the multicollinearity test are based on the recommendation of wooldridge (2011) is Hausman test to make a choice between random and fixed effect models. With the P-value of 0.0000 which is statistically significant, fixed effect model is therefore considered appropriate for this study. Further test such as normality, heteroskedasticity and auto correlation test were also conducted. This study conducted a normility test on the residuals of the model using shapiro-wilk and the study found that, the residual was normally distributed as the p-value is statistically insignificant. While the Wooldridge test for autocorrelation in panel data was also significant indicating presence of auto correlation. Also the heteroskedasticity test conducted using Modified Group Wise proved statistically significant with the p-value of 0.000, which indicates absence of homoscedacity. The presence of heteroscedasticity violates the homoscedasticity assumption and may lead to a wrong inference. Due to the presence of heteroskedasticity and auto correlationin the fixed effect model, the study therefore conducted panel corrected standard error (PCSE) model which overcome the both heteroskedasticity and auto correlation issues. PCSE preserves the weighting of observation for autocorrelation, but uses a sandwich estimator to incorporate cross-sectional dependence when calculating standard errors (Mantobaye Moundigbaye, William S. Rea, 2017). Thus, this study run the PCSE model based on the recommendation of Gujarati (2004) and finally, the PSCE model is hereby presented and discussed next. Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 14 Panel Corrected Standard Error (PCSE) Result The study presents the regression result panel corrected standard error (PCSE) regression in Table 3 below. Table 4.3: Panel Corrected Standard Errorregression CCH Coef. St.Err. Z-value p-value BIND 0.015 0.009 1.58 0.113 FL -0.209 0.084 -2.47 0.015 IO 0.184 0.040 4.59 0.000 LEV -0.588 0.137 -7.19 0.000 RnD 0.414 0.149 4.79 0.000 Constant 0.295 0.074 3.96 0.000 R-squared Number of obs Chi-square 0.4673 280.000 65.23 Hettest p-value Hausman p-value Normality Test 0.000 0.000 0.633 Prob> chi2 0.000 *** p<0.01, ** p<0.05, * p<0.1 Source: Summary of STATA OUTPUT The result in table 3 shows the result obtained from the Panel Corrected Standard Error Regression (PSCEs) which was interpreted after conducting all relevant tests. The coefficient of determination- R-squared was 0.4673 which showed that about 46.73%% of variation in CCH as was caused by variations in explanatory variables as indicated by the model. This implies that board independence (BIND), female leadership (FL) investment opportunity (IO), leverage (LEV), and research and development (R&D) jointly explained 46.73% of corporate cash holding of quoted manufacturing firms in Nigeria and it is statistically significant at 1% as indicated with p-value of 0.000 and chi-square of 65.23 respectively. While the remaining 53.27% are caused by other variables not found in the equation but measured by the error term. From the Table 3 the relationship between board independence (BIND) and corporate cash holding of listed manufacturing firms is negative as indicated with the coefficient of 0.015, and it is statistically insignificant as proven with the P- value of 0.113. On this note, we fail to reject null hypothesis which states that Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 15 board independence has no significant effect on corporate cash holding of listed manufacturing firms in Nigeria. The result signifies that female leadership (FL) has negative and statistically significant relationship with corporate cash holding. This is proven by the coefficient of -0.209 with the P-value of 0.015, which is at 5% level of significance. It means increase in female leadership will lead to decrease in demand for cash. This is because men are more confident in decision making than women and board lead by female directors do not make risky investment because of her risk appetite, there is no need for cash holding and that a negative relationship exists between female leadership and cash holding decision. This finding is inconsistent with the proposition of resource dependence theory and the findings of Duong and Evans (2016), Huang and Kisgen, (2013) Adams and Ferreira (2009). On this basis, we therefore support the alternate hypothesis, which states that female leadership has a significant effect on corporate cash holding of listed manufacturing firms in Nigeria. On the contrary, the regression result in Table 3 signifies that investment opportunity (IO) statistically is as an important mechanism that determines stakeholder prominence by influencing corporate cash holding (CCH) of listed manufacturing firms in Nigeria. This is proven by the coefficient of 0.184 with the P-value of 0.000, which is at 1% level of significance. It means increase in growth opportunity will lead to increase in demand for cash. This is because firms that need strong growth and regularly demand extraordinary investment tend to retain high cash in order to withdraw the lack of finance or the business dissolution of the organization. This finding supports the proposition of free cash flow theory and the findings of Drobetz et al., (2007), and Magerakis et al., (2015). On this basis, we therefore support the alternate hypothesis, which states that growth opportunity has a significant positive effect on corporate cash holding of listed manufacturing firms in Nigeria. Furthermore, there exists negative and significant relationship between leverage (LEV) and corporate cash holding (CCH) as indicated statistically by the coefficient of -0.588 with the p-value of 0.000, which is at 1% level of significance. It means increase in leverage will result to decrease in corporate cash holding. This is because high leverage gets a high return on investment and high-interest costs, this lead to reduce their ability to hold cash. In addition, when companies have a good credit policy tend to expand their business, they will use Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 16 retained earnings to reinvest this lead to reduce their cash and cash equivalent. This finding supports the proposition of free trade-off theory and the findings of Guney et al. (2007) Barasa, et al., (2018) Gill et al., (2011) Magerakis et al., (2015). On this basis, we therefore support the alternate hypothesis, which states that growth opportunity has a significant positive effect on corporate cash holding of listed manufacturing firms in Nigeria. From the regression result, the coefficient value of research and development (R&D) is 0.414 with the p-value of 0.000. The implication is that there is a positive and significant relationship between research and development and corporate cash holding of listed manufacturing firms in Nigeria. This implies that increase in research and development will result to increase in corporate cash holding. This is because when R&D investment changes, cash can effectively get rid of financial crisis, smooth R&D and ensure enough R&D funds keep enterprises run well. This finding supports the findings of Guney et al. (2007), Pinkowitz, et al., (2013) and Magerakis et al., (2015). On this basis, we therefore support the alternate hypothesis, which states that research and development has a significant positive effect on corporate cash holding of listed manufacturing firms in Nigeria. 5.0 Conclusion and Recommendation The choice of cash maintenance is a completely sensitive decision-making technique of a company; such a decision facilitates the determination of the degree of adequacy of the cash, proof of the companies on the trade and the idle cash stock within their operations. Our study concludes that female independent directors are tough monitors who play their role in mitigating the agency problem of cash holdings. The study also concludes that investment opportunity, leverage and research and development are good determinant of corporate cash holding. Finally, the study concludes that board independence have insignificant effect on corporate cash holding of listed manufacturing firms in Nigeria. Consequently, based on the conclusions of our research, the study recommends that, to enhance the effectiveness of boards and the efficient use of cash, firms with fewer women on their corporate boards now should look to add more female directors to their boards. Managers should also rationally presume that a firm with high quick asset replacements, high debt, and equity expense should maintain lower cash holdings. If for the unusual object, a firm with high quick asset delegates, high debt, and equity expense has high cash holdings, this force is a flag of a potential agency conflict. Managers should avoid holding excessive cash reserves as this might Gusau Journal of Accounting and Finance, Vol. I, Issue 2, October, 2020 17 attract scrutiny from the capital markets. There should be an optimal trade-off approach to cash holdings, and also there should be a hierarchy explanation for holding excess cash. 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