IOSR Journal of Economics and Finance (IOSR-JEF) e-ISSN: 2321-5933, p-ISSN: 2321-5925.Volume 7, Issue 3. Ver. III (May. - Jun. 2016), PP 29-35 www.iosrjournals.org DOI: 10.9790/5933-0703032935 www.iosrjournals.org 29 | Page Determinants of Corporate Cash Holdings: Empirical Analysis of Pakistani Firms Sulaman Jamil 1 , Amna Anwar 2 , Naila Afzaal 3 , Adnan Tariq 4 , Mohsin Asif 5 Faculty of Management and Administration sciences (FMAS) University of Gujrat, Pakistan Abstract: Keeping a suitable level of cash within the organization is crucial for the fluent operations of firms. If firms hold cash and cash equivalents it will provide the convenience of reinvestment. The aim of the study is to explore the determinants of corporate cash holdings of non financial firms among diverse firm sizes and diverse industries in Pakistan. For our analyses we used a sample of 50 Public Limited companies listed at Karachi Stock Exchange over the period of 2012-2014. The study applied descriptive statistics, co relational and multiple regression line. On behalf of multiple regressions we conclude that firm size, board size, net working capital and investment significantly affect the corporate cash holdings. Debt structure, leverage and return on asset are non significant and have negative association with cash holdings. Keywords: Cash holdings, firm size, board size, net working capital, debt structure, leverage, return on asset, investment, cash and cash equivalent, correlation I. Introduction Empirical studies regarding the determinants of corporate cash holdings have recently got a great deal of attention in corporate finance literature. Cash and cash equivalents are considered as some of the most important component of current assets and are the lifeline of corporate financial Management. The Managers hold a substantial portion of their assets in the form of cash and liquid securities for reinvestment distribution to shareholders and to keep cash inside the firm. Managers make decisions regarding how much liquidity a firm’s balance sheet should have. Cash holding, according to Gill and Shah (2012) is defined as cash in hand or readily available for investment in physical assets and to distribute to investors. Cash holding is considered as cash and cash equivalents that can be easily converted into cash. Therefore cash holdings include cash in hand and bank, short term investments and T-bills. Why do firms hold cash? A famous explanation is that cash allows low cost of financing for firms. Raising external finance cost more so managers trying to mitigate the cost of external financing in imperfect capital market and may see it best to sustain sufficient internal cash holdings. Holding cash may have adverse consequences such as agency conflicts existing between managers and shareholders. The corporate cash holdings framework is usually stated under tradeoff theory, pecking order theory, transaction cost, precautionary and speculative motives. According to tradeoff theory, (Ferreira & Vilela 2004) they set their optimal level of cash holding by considering the marginal costs and marginal benefits of holding cash. Both costs and benefits are associated with cash holding. Benefits rendered by cash holding allow firms to avoid the cost of liquidating existing assets and raising funds and provide growth opportunities and mitigate the likelihood of financial distress. If firms have inadequate amount of cash it does not only causes firms to confront high cost of financing and to forgo profitable investment projects. The cost of holding cash constitutes opportunity cost of the capital due to the low return on liquid assets. According to pecking order theory (Myer’s 1984) firms finance investments with three sources first with retained earnings then with safe debt and risky debt and finally with equity. If retained earnings are insufficient to finance investments then firms use cash holdings and if required issue debt. Firms require liquidity to meet their current expenses for several motives such as transaction, precautionary and speculative. Transaction cost motive (Keynes 1936) pertains to cash which is held for routine transactions to pay for day-to-day operations. For unexpected fluctuations corporations hold cash in reserves for precautionary motives. Speculative motives (Besley & Brigham 2005) refer to cash held for getting benefit from bargain purchases. Board of directors are responsible for cash management and corporate governance issues. Board size can lead to higher cash holdings that can ultimately lead to agency problems. Directors may not work in best interest of shareholders. Lawrencia et al. used dataset of 54 Nigerian firms listed on Nigerian stock exchange. They found that cash flow, net working capital, leverage, investment in capital expenditures and profitability has significant impact on corporate cash holdings in Nigeria. Gill and Shah studied the determinants of corporate cash holdings in Canada. By applying co relational and non-experimental research design results demonstrate that leverage, CEO