NUGRAHENI, Priska (2025) The Effect of Capital Expenditure, Firm Size, Growth Opportunity, and Leverage on Cash Holding. Skripsi thesis, Universitas Jenderal Soedirman.

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Abstract

This study is titled “The Influence of Capital Expenditure, Firm Size, Growth Opportunity, Leverage, and Profitability on Cash Holding.” The primary objective of this research is to empirically analyze the impact of key financial variables on corporate cash holding policies. The variables examined include: (1) capital expenditure, (2) firm size, (3) growth opportunity, (4) leverage, and (5) profitability, which serves as a control variable. This research adopts a quantitative approach using panel data regression analysis. The data utilized are secondary data sourced from the official website of the Indonesia Stock Exchange (www.idx.co.id) and the respective corporate websites. The population of the study comprises all companies listed on the Indonesia Stock Exchange during the 2022–2023 period, totaling 851 firms. The sample was selected using a purposive sampling method based on specific criteria, resulting in a final dataset of 244 firm-year observations. The data were analyzed using the Fixed Effect Model (FEM) with the assistance of EViews 12 software. The selection of FEM was supported by the results of the Chow and Hausman tests, which indicated that this model was the most appropriate for capturing the characteristics of the panel data. FEM was chosen due to its ability to account for unobservable individual effects across firms. To ensure the validity of the data, outlier testing was performed, and profitability was included as a control variable to enhance the robustness of the estimation model. The findings reveal that: (1) capital expenditure has no significant effect on cash holding, (2) firm size has a significant negative effect on cash holding, (3) growth opportunity has a significant positive effect on cash holding, (4) leverage has a significant negative effect on cash holding, and (5) the control variable, profitability, significantly affects the relationship between leverage and cash holding, but does not influence the relationships between the other independent variables and cash holding. Theoretically, this study is underpinned by the Trade-Off Theory, which posits that firms balance the benefits and costs associated with holding cash. According to this theory, firms aim to maintain an optimal level of cash to address cash flow uncertainty and to meet transaction, investment, and precautionary needs. However, excessive cash holdings incur opportunity costs, as idle cash may not yield optimal returns. Therefore, in determining cash holding policies, firms must consider their capital structure, growth prospects, and level of profitability. The results demonstrate that larger firms tend to have broader access to external financing and more stable cash flows, reducing the need to hold large cash reserves. This aligns with the Trade-Off Theory, which suggests that firms with lower liquidity risk—such as large firms—require lower precautionary cash holdings. Conversely, firms with high growth opportunities are more likely to retain substantial cash reserves to support future investments. The greater the growth prospects, the stronger the firm's tendency to avoid the risk of missing investment opportunities due to liquidity constraints. High leverage is found to have a negative effect on cash holding. Firms with substantial debt levels tend to allocate their cash flow toward interest and principal repayments and rely more on debt financing, thereby reducing the need to hold large cash balances. On the other hand, capital expenditure is not found to significantly influence cash holding, suggesting that capital investment is not a primary determinant in cash retention policies. Instead, firms tend to finance capital expenditure through external sources such as bank loans or bond issuance, in order to maintain internal cash stability. The inclusion of profitability as a control variable adds value to the model, as it alters the relationship between leverage and cash holding when controlled. This indicates that more profitable firms possess greater financial flexibility in managing both their cash and debt obligations, enabling them to balance investment needs with debt servicing capabilities. In conclusion, this study contributes to the financial literature by providing empirical evidence on the determinants of corporate cash holding in Indonesia. It reinforces the relevance of using the Fixed Effect Model for panel data analysis and highlights the importance of incorporating control variables such as profitability in corporate financial research. The findings are expected to serve as a valuable reference for corporate managers, investors, and academics in formulating effective and efficient cash management strategies.

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