Abstract
Cash is a vital and crucial element of any economic entities. Various factors can affect the level of cash holding, among which social rust is of paramount importance. Two competing theories have been discussed in the accounting and finance literature with respect to the effect of social trust on the level of corporate cash holding. On the one hand, Precautionary Savings Theory maintains that firms with high level of social trust are less likely to hold cash in comparison to other firms. On the other hand, agency theory predicts a positive association between the level of social trust and cash holdings. Therefore, the current study aims at investigating the relationship between the level of social trust and corporate cash holdings using structural equation modeling approach. To this end, the models developed by Opler et al. (1999) and Ozkan and Ozkan (2004) were employed to calculate the level of cash holding. In addition, Saffarinia and Sharifi’s (2010) questionnaire was used to assess the level of social trust. The questionnaire was sent to the financial managers of 116 firms, among which 82 ones answered it back. Having ensured the goodness-of-fit of the research models, and according to the predictions made by the agency theory, the results reveal that social trust contributes to the rise of corporate cash holding level.
)