Abstract
This paper aims to investigate the financial determinants of corporate cash holdings of Sharia-compliant (SC) and Sharia non-compliant (SNC) firms. This study applies the autoregressive distributed lag (ARDL) approach for a sample of 178 Malaysian listed firms over the period 2008-2017. The results show that, in long- run and short-run, various cash holding determinants vary in sign and magnitude between SC and NSC firms. Moreover, we find that SC firms quickly adjust their level of cash holdings toward a target level than NSC firms. These results can be explained by the by the restrictions imposed by Sharia rules on firms to sustain their compliance status. Overall, the findings reveal that the trade-off, the pecking order and the free cash flow theories play an important role in explaining the determinants of cash holdings of both SC and NSC firms. This study concludes that SC firms possess certain financial characteristics that can affect their cash holding decision.