Does Cash Holdings Influence the Firm Value of Philippine Public Companies Under the Industrial Sector: Evidence from Panel Data

Abstract

This study examines the relationship between cash holdings and the firm value of Philippine Publicly Listed Companies (PLCs) in the Industrial Sector, with a focus on the liquidity and profitability dimensions of firm performance. Cash holdings play a crucial role in both business survival and growth; as a result, organizations must choose between allocating resources to strategic investments for enhanced firm value and sustaining liquidity. This decision-making environment is further complicated by the intrinsic complexity of the Philippine industrial sector, which encompasses a wide range of businesses from manufacturing to infrastructure development. The study pursues three primary objectives: first, to identify the relationship between the age and size of Philippine PLCs in the industrial sector and their association with cash holdings and firm value; second, to profile these entities’ liquidity and profitability through the lens of their cash holdings; and third, to determine the association between cash holdings and these entities’ liquidity and profitability. Employing a descriptive quantitative approach, the study analyzes panel data for eighteen randomly selected publicly listed industrial enterprises over the period 2013–2017 (90 firm-year observations) through panel regression analysis in STATA, with the cash ratio used to measure cash holdings and Tobin’s Q used to measure firm value. To address the pronounced skewness observed in several variables, the data were winsorized at the 1st and 99th percentiles before estimation. The results indicate a significant negative association between firm value and Return on Assets (ROA), a positive association between firm value and Net Profit Margin (NPM), a negative association between firm value and the Inventory Conversion Period (ICP), and a significant negative association between firm size and firm value. The findings highlight the important roles that profitability, working capital efficiency, size, and age play in understanding the value of Philippine PLCs in the industrial sector, while the study cautions that the results reflect associations rather than causal effects.