Corporate Cash Holdings and Cost of Debt: Evidence from Indonesia Non-Financial Listed Firms

Abstract

This study examines the relationship between corporate cash holdings and the cost of debt, with additional consideration of the impact of the COVID-19 pandemic. Using a sample of 2,721 firm-year observations from non-financial publicly listed firms in Indonesia over the period 2018–2023, this study employs a quantitative research design and multiple linear regression analysis. The findings indicate that higher corporate cash holdings are associated with a lower cost of debt, suggesting that strong liquidity positions reduce creditors’ perceived risk and borrowing costs. However, the COVID-19 pandemic significantly disrupted corporate financial conditions and altered the relationship between cash holdings and debt financing. Robustness tests were conducted to address potential endogeneity and bias concerns, and the results remain consistent with the baseline ordinary least squares (OLS) estimations. These findings provide important implications for corporate managers, investors, and creditors in understanding how liquidity management influences financing costs, particularly during periods of economic uncertainty.