Determinants of Cash Holding in Capital Intensive Electricity Firms in Asia
DOI:
https://doi.org/10.59188/jurnalsosains.v6i8.32775Keywords:
Cash Management, Electricity Utilities, Dynamic Panels, Liquidity Substitution, Sovereign RiskAbstract
Capital-intensive electricity firms in Asia face significant liquidity pressures because they must finance long-term infrastructure while maintaining reliable daily operations. Their cash policies also reflect regulated revenues, debt obligations, working capital requirements, and country-level political conditions. Previous studies have mainly examined broad groups of non-financial firms and provide limited evidence on electricity utilities. This study investigates the determinants of cash holdings in 31 capital-intensive electric utility companies across Asia from 2016 to 2024. It analyzes the effects of operating cash flow volatility, capital expenditure intensity, leverage, net working capital, and sovereign risk, with revenue growth, profitability, and firm size as control variables. Sovereign risk is measured using the inverse of the Political Stability and Absence of Violence/Terrorism indicator from the Worldwide Governance Indicators. The initial dataset includes 279 firm-year observations, while the dynamic model uses 248 observations after incorporating lagged variables. Cash holding is calculated as the ratio of cash and cash equivalents to total assets. The Two-Step System Generalized Method of Moments (System GMM) approach is employed to address dynamic persistence, unobserved firm heterogeneity, and potential endogeneity, with Difference GMM and a winsorized System GMM model used as robustness tests. The findings robustly show that lagged cash holding has a positive and significant effect, confirming strong liquidity persistence, while net working capital shows a significant negative effect, supporting the liquidity substitution argument. In contrast, cash flow volatility, capital expenditure intensity, leverage, sovereign risk, and the control variables do not show significant effects in the main model. By presenting sector-specific evidence, this study demonstrates that historical liquidity and working-capital structure explain cash holdings more consistently than operational uncertainty, investment intensity, leverage, and country risk within this specific sector.
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