Abstract

This study examined the relationships between corporate cash holdings (corporate liquidity policy) and compensation incentives, offered by Karachi Stock Exchange listed non-financial companies, to their CEOs, Directors and Executives, keeping in view the managerial shareholding of the firm, levered capital structure and firm size. The regression results suggested that the CEO Compensation and Executive Compensation have a significant positive relationship with Corporate Cash Holdings. Size of the firm - a control variable - also has a significant positive relationship with Corporate Cash Holdings. We however, found that Leverage and Managerial Shareholdings have a significant negative relationship with the Corporate Cash Holdings. It is concluded that management of the companies do have influence on Corporate Cash Holdings positively, but at the expense of debt holders, as we have observed a significant negative relationship between leverage and corporate cash holdings viz-a-viz corporate liquidity policy. Another important conclusion drawn from the observed results is that managers having share in the ownership of the companies tend to influence the corporate liquidity policy of the companies.

Key words: Karachi Stock Exchange, compensation incentives, corporate liquidity policy.