Cash holdings, board governance characteristics, and Egyptian firms’ performance

Abstract

This paper examines the impact of cash holdings and board governance characteristics on companies’ performance by Egyptian listed non-financial companies over the period 2013–2019. The researchers employed pooled ordinary least squares and two-step system GMM estimations to test their research hypotheses. Moreover, firm fixed-effects regression was conducted for robustness test. We found a significant positive impact of cash holdings, board size, board gender diversity (BGD), and board meeting frequency on companies’ performance, while board members independence is found to impact performance negatively and lead to less profits. Further, board members role duality is found to have no significant impact on Firm Performance. This paper holds potential implications for businesses based in Egypt, as well as for investors who operate within the Egyptian market, along with regulatory bodies in developing nations. The study findings contribute valuable insights to the literature on cash holdings and corporate governance. They enhance our understanding of how cash holdings and board of directors’ characteristics can influence a company’s profitability, particularly in the context of emerging markets. Additionally, the study’s focus on an emerging market provides new evidence that can be relevant to accounting researchers studying similar contextual and institutional environments in other emerging markets.

Keywords:

• Cash holdings
• corporate governance
• board governance
• firm performance
• emerging economy
• Egypt

Reviewing Editor:

• Collins Ntim, Accounting, Southampton Business School, University of Southampton, Southampton, UK

JEL CLASSIFICATIONS:

• M40
• M41
• M48

1. Introduction

In recent years, the level of cash holdings got significant attention from scholars in accounting, finance, and management due to the increasing prevalence of liquid assets being held by companies. While the historical perspective considered holding substantial cash reserves as an inefficient managerial choice fraught with opportunism and governance issues, contemporary trends reveal a growing number of companies actively accumulating cash reserves to support growth and business development (La Rocca & Cambrea, 2019). This strategic choice to maintain cash holdings is mainly to ensure increased flexibility in financial matters, enabling firms to capture growth opportunities and enhance performance (Jabbouri & Almustafa, 2021; Lian & Ma, 2021; Palazzo, 2012; Ranajee & Pathak, 2019; Yun et al., 2021).

Cash holdings can serve the interests of shareholders by providing flexibility in financial matters, decreasing transaction costs, and ensuring a reduced cost for financing using the company internal funds (Almeida et al., 2004). However, it is also acknowledged that managers may exploit excess cash to pursue personal interests, leading to concerns about the optimal use of corporate cash reserves (La Rocca & Cambrea, 2019; Pinkowitz et al., 2006). Consequently, managers face the recurring decision of whether to distribute cash to shareholders, allocate it internally, utilize it for external acquisitions, or maintain cash holdings (Harford et al., 2008; Sayed & Khalil, 2022; Yun et al., 2021).

This ongoing debate has sparked considerable interest among researchers aiming to understand the association between cash holdings and FP. However, findings found in the literature regarding this association remain inconclusive (Alnori, 2020; Asante-Darko et al., 2018; Ashhari & Faizal, 2018; Banjade & Diltz, 2022; Dimitropoulos et al., 2020; Jabbouri & Almustafa, 2021). Many scholars argue that the analysis of corporate cash holdings should consider the governance environment and institutional development (Al-Najjar & Clark, 2017; La Rocca & Cambrea, 2019; Lin et al., 2019). Accordingly, the current study aims to explore how corporate cash holdings influence a firm’s financial performance while considering the governance environment by concentrating on the board of directors’ governance characteristics (i.e. board size, BGD, board members independence, members role duality, and the frequency of board meetings). Hence, this research aims to answer the following two questions: (1) what is the influence of corporate cash holdings on FP? (2) what is the influence of board governance characteristics on FP? Our results revealed that there is a positive and significant impact of cash holdings, board size, BGD on companies’ performance, while board members independence is found to impact performance negatively and lead to less profits. Further, meeting frequency and role duality are found to have no significant impact on FP.

A primary contribution of this paper lies in its focus on the Egyptian context, a departure from the prevailing trend of studies predominantly conducted in developed countries, which exhibit contextual dissimilarities with developing nations like Egypt. The Middle East and North African (MENA) region, particularly Arab countries, including Egypt, present a distinctive milieu that warrants increased scrutiny. This region has undergone significant socio-political and economic transformations, notably influenced by liberation movements, such as the recent Arab Spring uprising (Abdelazim et al., 2023). Commencing economic reforms and market liberalization movements in the late 1990s, Egypt initiated initiatives encompassing privatization, fiscal restraint, governance enhancement, and women’s empowerment (Metwally, 2022; Metwally et al., 2021). However, these reforms were faced by two revolutions namely in 2011 and 2013. These revolutions raised economic instability due to the political unrest and raised uncertainties and risks in the Egyptian market (Metwally & Diab, 2021).

A major concern for all stakeholders was the currency floating initiatives initiated by the Egyptian government in 2013, an ongoing process resulting in a substantial depreciation of the Egyptian pound against foreign currencies (Adams & Metwally, 2019; Elewa & Mahmoud, 2023; Hassaan & Salah, 2023). This shift in the currency rate poses operational and credit risks to numerous stakeholders and instills uncertainty in others, prompting an increased preference for holding cash in the local currency to counteract sudden fluctuations in exchange rates (El-Halaby et al., 2021). Given that many companies either hold loans or leases from international institutions or import a significant portion or all of their raw materials from the global market, the aforementioned instability and apprehensions prompted the Egyptian government to institute several reforms to the corporate governance code. These reforms aim to tighten control over management actions, alleviate fears, and reduce tensions in the market and the country.

This research study offers a valuable contribution to the existing literature in multiple ways. Firstly, it addresses a gap in the literature by focusing on the unique business environment of developing countries like Egypt, which differs from the context of earlier studies primarily conducted in developed countries. Egypt holds a prominent position as a leading emerging market in Africa and plays a significant role in the MENA region’s financial markets (Metwally, 2022; Metwally et al., 2021). Furthermore, the country’s distinctive settings, particularly after the 2011 liberal revolution and Arab spring revolutions, share similarities with certain other countries in the MENA region (Abdelazim et al., 2023). Secondly, the results of this study will enhance our understanding of how cash holdings and board of directors’ characteristics can influence a company’s profitability, particularly in the context of emerging markets, and post-revolutionary environment. This aspect of the research provides novel insights into the dynamics between cash holdings, board governance characteristics, and FP. Lastly, the research aims to provide practical recommendations and implications based on the revealed results for potential investors in the Egyptian Exchange (EGX) and regulators in emerging markets that share similar economic, political, and social characteristics with Egypt. These recommendations can contribute to informed decision-making in these contexts.

The remaining of the paper is organized as follows. Section 2 discusses the contextual ramifications in the EGX context. Section 3 explains the theoretical framework deployed in the current study. Section 4 analyse the studies in the literature to identify gaps and formulate the study hypotheses. Section 5 explicate the current study methodology and methods. Section 6 discusses the findings and discussions. Section 7 illustrates additional measures for robustness analysis. Finally, section 8 concludes the study and present limitation and future research.

2. Contextual ramifications

In the MENA region, there are many emerging stock markets. The EGX represents one of the early established markets. Moreover, in most of the MENA region stock markets and economy are dominated by family companies (including Egypt), where governance mechanisms and investor protection laws are weak (Metwally, 2022), especially the minority, and the cost of confronting corruption also increases, which leads to an increase in the cost of agency in these companies, as managers prefer to satisfy senior owners of family companies by keeping large and accumulated cash balances (Abdelazim et al., 2023; Diab et al., 2023). With the aim of hoarding it to finance future investment expansions away from other financing sources that find it difficult to obtain, such as financing from the capital markets or debt financing, and then the owners of these companies are keen not to waste cash in low-viability projects, or distribute dividends to the rest of the shareholders or pay the cost Corruption to end its transactions in some countries (Diab et al., 2023; Metwally, 2022; Metwally et al., 2021).

In contrast, in other environments (especially developed ones), the role of the state is maximized in activating governance mechanisms, providing investor protection and anti-corruption tools, providing external and self-financing tools, and controlling public companies listed in the stock market, especially those that take the form of economic groups. These companies will not keep large cash assets and always strive to preserve and not waste their resources (Al-Najjar & Clark, 2017).

With respect to the retention of cash by companies in Egypt, previous research has shown that these firms tend to maintain substantial cash reserves (Dittmar et al., 2003). Recent findings suggest that Egyptian companies rely on liquid assets as a substitute for cash to manage their working capital and utilize debt financing as a substitute for cash to fund their business activities (Otaify et al., 2022). Moreover, during times of heightened political turmoil, Egyptian firms have retained more cash than before revolutions (Sayed & Khalil, 2022). The momentous occurrences in Egypt had a profound effect on the country’s political, economic, and regulatory landscape. The revolutionary movements and the resulting unrest had significant repercussions on the economy, contributing to instability (Mohamed Metwally, 2017). This continued revolutionary mindset among the populace fostered a sense of apprehension within the Egyptian market. As a result, this fear was a key motivator for main stakeholders (i.e. shareholders, management, investors, and even the government to act cautiously) (Diab & Metwally, 2020; Metwally & Diab, 2021).

The level of investor protection in Egypt is considered poor, as Egypt ranking is 122 which is poor as the total countries in the index is 189 countries in the 2016 world bank report for investors’ protection index. Although the Egypt ranking was improved in 2018 as Egypt jumped to the 81^st. However, investor protection in Egypt is still regarded to be weak and needs further enhancement. As a result, the Egyptian setting provides a favorable environment for the examination of established theories that have mostly been tested in developed economies through a ‘stress test’ approach (Abodoma, 2018).

3. Theoretical framework

The determination of a corporation to retain cash finds elucidation through three principal theories within the existing literature. One such proposition, articulated by Jensen (1986); and Jensen and Meckling (1976), underscores the pivotal role of agency conflicts between managerial agents and shareholders in shaping the magnitude of cash reserves maintained by the firm. The contention posits that managers, endowed with surplus free cash flows, may engage in irrational expenditure and investment choices, thereby detrimentally affecting the firm’s overall value. The second theoretical framework, denoted as the pecking-order theory, postulates that the presence of information asymmetry between managers and external entities exerts influence on decisions pertaining to cash holdings. Entities characterized by heightened information asymmetry are prone to encountering more pronounced constraints on external financing, prompting them to accumulate greater cash reserves for the purpose of sustaining daily operations and navigating financial uncertainties. Finally, the trade-off theory deliberates on the marginal costs and benefits associated with cash retention. Given the limited returns provided by cash holdings, the firm is tasked with assessing the merits and demerits of maintaining cash reserves. Should the advantages of holding cash surpass the associated costs, the firm’s capacity to pursue investment opportunities is augmented, particularly during periods of constrained external financing (Kim et al., 2013).

The emergence of interest in cash holdings within the field of economics is attributable to the liquidity preference theory. Rooted in the insights of Keynes (1936), this theory delineates three rationales for maintaining substantial liquid assets. Firstly, the imperative to preserve resources for future transactions and streamline the process of asset liquidation is paramount. Secondly, the accrual of significant cash reserves serves as a strategic response to capitalize on prospective growth opportunities and shield organizations from unforeseen perturbations, such as financial crises. Empirical studies underscore the notion that investing in liquid assets aids in averting potential future external finance costs (Bates et al., 2009; Ozkan & Ozkan, 2004). Lastly, the speculative motive posits that firms augment their cash holdings to exploit opportunities stemming from forthcoming macro- or microeconomic policy shifts, such as alterations in interest rates or fluctuations in raw material prices (Dimitropoulos et al., 2020).

The intricacies surrounding the influence of board governance characteristics, including size, board gender diversity (BGD), independence, role duality, and meeting frequency, on firm performance, exhibit a heightened level of complexity when juxtaposed with the examination of the impact of cash holdings. Numerous studies, conducted in diverse contexts, have predominantly focused on individual facets of these governance characteristics, employing a variety of theoretical frameworks, such as echelons theory, stewardship theory, institutional theory, stakeholders theory, agency theory, and resource dependence theory (Abdulsamad et al., 2018; Al-Najjar & Clark, 2017; Arora & Sharma, 2016; Darko et al., 2016; Duru et al., 2016; Khatib et al., 2022; Mohamed Zabri et al., 2016; Puni & Anlesinya, 2019; Saleh et al., 2021; Sarhan et al., 2019; Wang et al., 2019). However, we contend that a singular theoretical framework may not suffice to comprehensively delineate the multifaceted impact of board governance characteristics on firm performance. In light of this, our present study advocates for an integrative approach, drawing upon agency theory, resource dependency theory, and stewardship theory. This triangulated theoretical perspective aims to provide a more nuanced and comprehensive understanding of the intricate relationships between board governance characteristics and firm performance.

4. Literature review and hypotheses development

4.1. Cash holdings and firm performance

The origins of studying cash holding goes back to late 1930s with the emergence of liquidity preference theory (Keynes, 1936). Theoretically, managers retain cash either to be as an internal financial resource to grip any investment and growth opportunity or to face any unexpected risks or contingencies (Almeida et al., 2004), or as a cheap source of financing as companies will reduce the dependence on external financing when retaining plentiful amount of cash, which may include high transaction cost due to market inefficiencies and information asymmetry (La Rocca & Cambrea, 2019). In addition, holding more cash was connected to the pecking order theory as market uncertainty produces information asymmetry which affects the investor management relationship. This situation increases the financing cost and the probability of risks in financing from the external market. As a response managers take defensive actions to secure less expensive and risk financing through retaining more cash in hand (Myers & Majluf, 1984). Moreover, according to agency theory retaining plentiful amount of cash can increase the managers opportunistic behaviour if not controlled properly through strong governance tools and may result in agency problems and increase the agency costs (Jensen, 1986; Jensen & Meckling, 1976). In developing countries, where governance tools are week managers were found to engage in opportunistic behaviour through spending on themselves or spend on activities that get them benefits in the short or long run instead of returning these excess amounts of cash to the shareholders (Dittmar & Mahrt-Smith, 2007; Pinkowitz et al., 2006).

Building on the above theories many scholars concentrated on the association between cash holding and FP and reached mixed results (Alnori, 2020; Asante-Darko et al., 2018; Ashhari & Faizal, 2018; Banjade & Diltz, 2022; Dimitropoulos et al., 2020; Jabbouri & Almustafa, 2021; La Rocca & Cambrea, 2019; Yun et al., 2021). Many studies concluded that holding more cash represents a good resource for the firm and enhances its performance (Dittmar et al., 2003; Jabbouri & Almustafa, 2021; Lian & Ma, 2021; Palazzo, 2012; Ranajee & Pathak, 2019; Yun et al., 2021). On the contrary, cash holding was found to negatively impact the FP in other studies (Gao et al., 2013; La Rocca & Cambrea, 2019; Luo & Hachiya, 2005; Tran, 2020).

Further, Harford et al. (2008) highlighted that cash holdings have a non-linear association with FP. In addition, previous studies have explored the positive and negative effects of liquidity on performance, empirical evidence is lacking in terms of the influence of specific firm characteristics and the surrounding context. These studies concluded that governance weaknesses can lead to agency problems, where managers would misuse the excess cash holdings for personal benefits, thereby adversely affecting FP. This plea for further investigations into the moderating effect of governance characteristics, and ownership concentration on the cash holdings association with FP (Yun et al., 2021). Based on this, the following hypothesis is proposed:

H1:

A positive association exists between cash holding and firm performance.

4.2. Board governance characteristics and firm performance

Numerous research studies have highlighted the influence of distinct board governance characteristics on FP. These characteristics include, but are not limited to, the size of the board, BGD, the independence of board members, the duality of board member roles, and the frequency of board meetings (Agyei-Mensah, 2021; Alhossini et al., 2021; Amin et al., 2023; Bhat et al., 2018; Bravo et al., 2015; García Martín & Herrero, 2018; Lu et al., 2022; Saleh et al., 2021; Terjesen et al., 2016; Wang et al., 2019).

It is evident that the composition of the board should reflect its role in advising and supervising. However, in light of recent economic crises and their impact on companies, shareholders, and society, there may be a shift in priorities regarding the board’s functions. The emphasis on supervision and monitoring may become more important than the traditional role of administration. As a result, regulators believe that action must be taken to address various aspects of the board (García Martín & Herrero, 2018). To analyze how the need for guidance and monitoring impacts different aspects of the board, we examine five key board governance factors: size, gender diversity, members independence, members role duality, and meetings frequency.

Firstly, there has been debate about the optimal size of a board of directors and its relationship to FP. While some argue that larger boards offer more diversity and opportunities for networking and planning, others believe that smaller boards are more efficient (Darko et al., 2016). One perspective suggests that better advising to the management and monitoring role was associated with companies with larger boards (Ji, 2016). Board size can be used by some studies as an indicator of better monitoring, advising, and expertise which may provide the board with insight into management behavior (Agyei-Mensah, 2021; Anderson et al., 2004; Ntim et al., 2015). The literature includes mixed results when investigating the association between board size and its effectiveness in enhancing the performance. Some studies suggest a positive association (Ali, 2020; Arora & Sharma, 2016; Bhat et al., 2018; Rashid, 2020). However, other studies report a negative association (Afrifa & Tauringana, 2015; Wang et al., 2019) or find no significant association (Rodriguez-Fernandez et al., 2014).

Secondly, BGD directly affects the quality and process of decision-making (Abdelazim et al., 2023; Metwally et al., 2021). Studies that deployed resource dependence theory suggests that the existence of female members on the board can provide unique perspectives, and different problem-solving skills (Abdelazim et al., 2023; Issa et al., 2021; Saleh et al., 2021; Sarhan et al., 2019; Terjesen et al., 2016), which could enhance firm financial performance (Pucheta-Martínez et al., 2018). Moreover, studies in economic psychology have consistently highlighted that women possess more risk-averse tendencies (Abdelazim et al., 2023; Metwally et al., 2021). However, previous studies on the impact of BGD on financial performance have produced mixed results (Abodoma, 2018; Issa et al., 2021; Kim et al., 2020; Noguera, 2020; Saleh et al., 2021; Ullah et al., 2019), most of these studies found that BGD impacts the financial performance and investment efficiency positively (Agyei-Mensah, 2021; Darko et al., 2016). BGD positive impact on performance is supported by many studies that deployed agency theory as Jensen and Meckling (1976) suggest that the presence of women on the board, like the existence of ethnic minorities in the society, or foreigners in a country, can bring a new perspective which can correct biases in strategy development and problem solving (Darko et al., 2016; Saleh et al., 2021).

Thirdly, board members independence was studied extensively through deploying both agency theory and resource dependency theory. Agency based studies suggested that non-executive directors can effectively monitor management performance. Having a greater proportion of non-executive directors on the board leads to improved monitoring of board activities and limits managerial opportunism. As Agency theory focuses on conflicts of interest between owners and management, the existence of independent directors who are outside the corporation, are less likely to have such conflicts of interest and can offer impartial judgment and greater integrity (Darko et al., 2016). Therefore, some studies hypothesized and found that an increase in board members independence positively impacts FP (Agyei-Mensah, 2021; Darko et al., 2016; Tran, 2020). Despite the large body of research that investigated the relationship between independent directors and FP, the evidence remains inconclusive (Agyei-Mensah, 2021; Tran, 2021; Wang et al., 2019). Resource dependency theory-based studies explained that the increase in board members independence increases the access to external resources which influences firm behaviors. According to the theory, independent directors possess valuable knowledge and relationships, such as social networks, unique experiences, work experience, and networks that can contribute to the firm’s success and increase profitability (Bhat et al., 2018; Tran, 2021).

Fourthly, studies on the association between CEO role duality and FP concluded with mixed results (Abdulsamad et al., 2018). Agency theory suggests that role duality is not desirable to avoid power concentration and opportunistic behavior by managers. Accordingly, the existence of role duality can lead to the domination of the board by the CEO, resulting in a lack of accountability and transparency that ultimately harms the performance and growth of the company (Puni & Anlesinya, 2019). In contrast, stewardship theory suggests that CEO duality promotes strong and focused leadership that can enhance corporate performance, particularly in competitive environments (Abdulsamad et al., 2018; Puni & Anlesinya, 2019). Empirical evidence is mixed, with studies suggesting that CEO duality has either positive or negative impacts on FP (Abdulsamad et al., 2018; Boyd, 1995; Duru et al., 2016). Arora and Sharma (2016) found no significant relationship between CEO duality and FP in Indian manufacturing firms.

Finally, board meeting frequency was found to be essential to enhance the board’s efficiency and effectiveness (Mohamed Zabri et al., 2016). However, Rodriguez-Fernandez et al. (2014) found a negative association between board meeting frequency and FP. On the other hand, Ntim and Osei (2011) demonstrate that meeting frequency improves the board’s control and maintains discipline, leading to better corporate FP. The board’s supervisory function is carried out during meetings and the frequent board meetings can enhance value maximization for shareholders, provided that decisions made minimize conflict of interest and agency costs (Ntim & Osei, 2011). Furthermore, the costs of board meetings, such as travel expenses, managerial time, and directors’ fees, may negatively affect performance (Puni & Anlesinya, 2019; Wang et al., 2019). Accordingly, the researchers expect that the board governance characteristics (size, BGD, independence, role duality, and meeting frequency) will collectively affect FP. Based on this, the following hypothesis is proposed:

H2:

A positive association exists between board governance characteristics and firm performance.

5. Research design

5.1. Sample and data sources

The study’s sample consists of all non-financial firms listed on the Egyptian Stock Exchange’s EGX100 index, covering the period from 2013 to 2019. To ensure the sample’s reliability, certain criteria were employed in selecting the firms, including their shares not being suspended from trade during the study period, not undergoing significant events like consolidation, presenting financial statements in Egyptian pounds, and having data available from 2013 to 2019. Consequently, the final sample comprised 52 firms, which resulted in a total of 364 firm-year observations. Table 1 illustrates the final sample categorization by industrial type.

Table 1. The final sample categorization by industrial type.

Initial sample			100
(-) Financial firms			(20)
Non-financial firms			80
(-) Firms with incomplete data			(28)
Final sample			52
Study time frame			7
Total observations			364
Industry	Firms	Observations	%
Food and beverages	11	77	21.1
Constructions	6	42	11.5
Industrial	4	28	7.7
Tourism	5	35	9.6
Real estates	7	49	13.4
Chemicals	3	21	5.8
Basic resources	3	21	5.8
Textiles and durable goods	3	21	5.8
Media	1	7	1.9
IT & Communication Services	3	21	5.8
Trade and distributors	3	21	5.8
Healthcare	3	21	5.8
Total	52	364	100%

5.2. The study models

To investigate the potential relationships in the study hypotheses, we have specified two multiple regression analyses. The models listed below were developed:

Model 1: $$\mathbf{\text{Performance}}\left(\mathbf{\text{RO}}{\mathbf{A}}_{\mathbf{\text{it}}},\mathbf{\text{RO}}{\mathbf{E}}_{\mathbf{\text{it}}}\right)=\mathbf{\beta }\mathbf{0}+\mathbf{\beta }\mathbf{1}\mathbf{C}\mathbf{\text{as}}{\mathbf{h}}_{\mathbf{\text{it}}}+\mathbf{\beta }\mathbf{2}\mathbf{\text{FS}}{\mathbf{Z}}_{\mathbf{\text{it}}}+\mathbf{\beta }\mathbf{3}\mathbf{\text{NW}}{\mathbf{C}}_{\mathbf{\text{it}}}+\mathbf{\beta }\mathbf{4}\mathbf{C}{\mathbf{F}}_{\mathbf{\text{it}}}+\mathbf{\text{fixed industry effec}}{\mathbf{t}}_{\mathbf{\text{it}}}+\mathbf{\text{fixed year effec}}{\mathbf{t}}_{\mathbf{\text{it}}}+{\mathbf{\epsilon }}_{\mathbf{\text{it}}}$$

Model 2: $$\mathbf{\text{Performance}}\left(\mathbf{\text{RO}}{\mathbf{A}}_{\mathbf{\text{it}}},\mathbf{\text{RO}}{\mathbf{E}}_{\mathbf{\text{it}}}\right)=\mathbf{\beta }\mathbf{0}+\mathbf{\beta }\mathbf{1}\mathbf{\text{BS}}{\mathbf{Z}}_{\mathbf{\text{it}}}+\mathbf{\beta }\mathbf{2}\mathbf{\text{Bin}}{\mathbf{d}}_{\mathbf{\text{it}}}+\mathbf{\beta }\mathbf{3}\mathbf{\text{DAU}}{\mathbf{L}}_{\mathbf{\text{it}}}+\mathbf{\beta }\mathbf{4}\mathbf{\text{Bdiversit}}{\mathbf{y}}_{\mathbf{\text{it}}}+\mathbf{\beta }\mathbf{5}\mathbf{\text{Bmee}}{\mathbf{t}}_{\mathbf{\text{it}}}+\mathbf{\beta }\mathbf{6}\mathbf{\text{FS}}{\mathbf{Z}}_{\mathbf{\text{it}}}+\mathbf{\beta }\mathbf{7}\mathbf{\text{NW}}{\mathbf{C}}_{\mathbf{\text{it}}}+\mathbf{\beta }\mathbf{8}\mathbf{C}{\mathbf{F}}_{\mathbf{\text{it}}}+\mathbf{\text{fixed industry effec}}{\mathbf{t}}_{\mathbf{\text{it}}}+\mathbf{\text{fixed year effec}}{\mathbf{t}}_{\mathbf{\text{it}}}+{\mathbf{\epsilon }}_{\mathbf{\text{it}}}$$

where ROA refers to return on assets, ROE is return on equity. Cash, BSZ, Bind, DUAL, Bdiversity, and Bmeet represent cash holding, board size, board independence, CEO duality, BGD, and board frequency meetings, respectively. Controls are Firm Size (FSZ), Net working capital (NWC), and Cash flow (CF). All variables are defined in Table 2.

Table 2. Variables definitions.

Variables	Definition
Dependent variable
Firm performance
(ROA)	Net income/total assets.
(ROE)	Net income/total equity.
Independent variables
Cash holdings (cash)	Cash and cash equivalents/total assets.
Board size (BSZ)	The Aggregate Count of Board Members.
Board independence (bind)	The number of non-executive independent directors on the board.
Role duality (DUAL)	A dichotomous variable coded as 1 if the Chief Executive Officer is the also Board Chair, and 0 otherwise
BGD (Bdiversity)	The ratio of women directors on the board.
Board frequency meetings (Bmeet)	Aggregate count of board Meetings held throughout a fiscal year.
Control variables
Firm size (FSZ)	Log of total assets.
Net working capital (NWC)	Subtracting current liabilities and cash and cash equivalents from current assets, and then dividing the result by total assets.
Cash flow (CF)	Dividing earnings before interest, dividends, and taxes (but before depreciation) by total assets.

5.3. Main variables measurement

5.3.1. Dependent variable

5.3.1.1. Firm performance

Previous studies reported that there are two indicators commonly utilized to represent company’s financial performance namely ROA and ROE (Alnori, 2020; Andoh et al., 2023; Issa et al., 2021). Both indicators are this study dependent variable and are utilized to assess the firm’s performance.

5.3.2. Independent variables

5.3.2.1. Cash holdings

The amount of cash a company has as a factor in measuring a company’s performance. To quantify this factor, the proportion of cash and cash equivalents relative to the total assets of the company is calculated, using a methodology like prior studies (Ghaly et al., 2015; Jabbouri & Almustafa, 2021; Suherman et al., 2021).

5.3.2.2. Board characteristics

‘Board Size’: refers to the aggregate count of board members (Agyei-Mensah, 2021; Asante-Darko et al., 2018), ‘Board Independence’: represents to the number of board members that are non-executive and independent (Asante-Darko et al., 2018; Martínez-Sola et al., 2018), ‘Role Duality’: is defined here as a dummy variable, coded as 1 if the Chief Executive Officer of the company is also the Board Chair, and 0 otherwise (Mishra & Kapil, 2018; Ullah et al., 2019), ‘BGD’: is the proportion of female directors on the board (Abdelazim et al., 2023; Wang et al., 2019), ‘Board Frequency Meetings’: represents the number of board meetings held within a fiscal year (Wang et al., 2019).

5.3.3. Control variables

Firm size was explained by a natural log of the company total assets. Net Working Capital is calculated by deducting current liabilities and cash and cash equivalents from current assets, and subsequently dividing the result by total assets. Cash flow was determined through the division of earnings before interest, dividends, and taxes (but before depreciation) by total assets (Alnori, 2020; Suherman et al., 2021; Ullah et al., 2019; Wang et al., 2019).

Table 3 contains descriptive statistics for the main variables. The Mean of ROA and ROE is 0.049 and 0.066, respectively. and ROA ranges from −0.248 to 0.550 and ROE ranges from −0.155 to 0.316. These large differences in the highest and minimum ROA and ROE ratios imply a discrepancy in Egyptian companies’ performance over the study period. Statistics also demonstrate that Egyptian companies retain average cash of 10.4%; this is higher than the amount of cash held by Saudi companies (8.8%) (Alnori, 2020), as well as some emerging markets, such as Brazil, China, Russia, and India, which almost 5.6 percent (Al-Najjar, 2013). Whereas lower than the Cash retained by US companies’ 21% (Ghaly et al., 2015).

Table 3. Descriptive statistics.

Variables	N	Min	Max	Mean	SD
ROA	364	−0.248	0.550	0.0492	0.0893
ROE	364	−0.155	0.316	0.066	0.120
Cash	364	−1.3410	1.5280	0.1046	0.2317
BSZ	364	4.00	17.00	8.71	2.808
Bind	364	1.00	15.00	6.52	2.555
DUAL	364	0.00	1.00	0.555	0.498
Bdiversity	364	0.00	0.500	0.0973	0.1177
Bmeet	364	2.00	20.00	7.09	3.201
FSZ	364	17.188	23.796	20.3095	1.6629
NWC	364	−0.8192	0.9920	0.1738	0.2708
CF	364	−0.35	0.38	0.0339	0.0916

Furthermore, the mean for Board size is 8.71 and ranges from 4.00 to 17.00. The number of non-executive directors ranged from 1.00 to 15.00 with a mean of 6.5. Also, we can notice that the minimum number of board meetings is 2 meetings annually, the average number of meetings is 7, and 20 is the maximum meeting number annually in Egyptian companies. Additionally, the Mean of DUAL shows that Egyptian firms have 55.5% CEO duality, which is equivalent to 202 observations from the final sample (364*55.5%). Furthermore, regarding BGD, we discovered a considerable variance across the sample firms. as previously stated, the proportion of females varied from 0.00 to 0.50, with an average of 0.097 and a SD of 0.117. Regarding control variables, descriptive statistics show that the company size ranged from 17.18 to 23.79, with an average of 20.30, and with a SD of 1.66. Furthermore, the table shows that CF is in the range of −0.35 min to 0.38, with an average of 0.0339. Additionally, the table reveals that NWC is in the range of −0.819 min to 0.992, with an average of 0.174.

Table 4 presents the results of the correlation matrices, indicating a low degree of correlation between the independent variables, showing the absence of multicollinearity. This is further confirmed by the variance inflation factor (VIFs). The findings also reveal a positive correlation between ROA and ROE with Cash, BSZ, and Bdiversity at a significant level of <1%.

Table 4. Correlation matrix.

Variable	ROA	ROE	Cash	BSZ	Bind	DUAL	Bdiversity	Bmeet	FSZ	NWC	CF	VIF
ROA	1											–
ROE	0.825***	1
Cash	0.269***	0.190***	1									1.143
BSZ	0.151***	0.185***	−0.064	1								1.668
Bind	0.036	0.112**	−0.053	0.371**	1							1.424
DUAL	0.017	−0.047	−0.134*	0.034	−0.045	1						1.071
Bdiversity	0.181***	0.167***	0.224**	0.295**	0.297**	0.151**	1					1.234
Bmeet	0.024	0.055	0.074	0.126*	0.156**	0.112*	0.257**	1				1.108
FSZ	0.072	0.156***	−0.086	0.332**	0.205**	−0.051	−0.048	0.003	1			1.033
NWC	0.354**	0.299**	0.299**	−0.112*	−0.095	0.071	−0.003	−0.087	−0.177**	1		1.128
CF	0.421**	0.301**	0.200**	0.095	0.046	−0.059	0.162**	−0.036	−0.027	0.041	1	1.042

Notes: ***, **, and * reflect significance at 1, 5, and 10% levels, respectively.

Further, the results imply an insignificant positive connection between ROA and Bind, DUAL, Bmeet. Additionally, there is a significant positive association between ROE and Bind, and an insignificant negative connection between ROE and DUAL. Finally, the findings imply a significant positive correlation between ROE, ROA and NWC, CF.

6. Regression results

To test our hypotheses, we used pooled ordinary least squares (OLS) with panel data. Additionally, to verify the reliability of our findings and overcome potential endogeneity problems, we apply the Two-Step System Generalized Method of Moments (GMM) approach, following Abid et al. (2021); and Gull et al. (2023) to study the association between cash holdings, board characteristics and company performance. This method seeks to avoid or reduce endogeneity problems that may exist between our firm’s performance (ROA and ROE) and a variety un-observed firm characteristics (Ntim et al., 2015). Further, GMM methodology is able to handle issues related to heteroscedasticity, autocorrelation and uses past values of the dependent variables (ROA and ROE) as suitable instruments to address the potential presence of both simultaneous and dynamic endogeneity.

The findings of the pooled OLS approach are reported in Table 5, The estimation of Model (1) was conducted using ROA and ROE as dependent variables. It was fit and demonstrated statistically significant for both ROA and ROE. This indicated that the model of companies’ financial performance (ROA and ROE) was statistically valid, as well as the adjusted R² within the model Column (1.1) and (1.2) was 31% and 19.8%.

Table 5. Results of OLS regression.

Variables	Model 1				Model 2
	ROA (1.1)		ROE (1.2)		ROA (2.1)		ROE (2.2)
	Coef	t-Stat	Coef	t-Stat	Coef	t-Stat	Coef	t-Stat
Cash	0.055	2.95***	0.059	2.39**	—	—	—	—
BSZ	—	—	—	—	0.079	2.10**	0.013	0.22
Bind	—	—	—	—	−0.011	−1.99**	−0.001	−0.23
DUAL	—	—	—	—	−0.005	−0.42	−0.007	−0.38
Bdiversity	—	—	—	—	0.111	2.14**	0.185	2.26**
Bmeet	—	—	—	—	0.019	1.64	0.033	1.98**
FSZ	0.009	2.38**	0.022	3.59***	0.006	1.80*	0.022	3.37***
NWC	0.086	4.72***	0.105	4.18***	0.101	5.65***	0.120	4.81***
CF	0.255	6.68***	0.213	4.45***	0.259	6.76***	0.220	4.62***
Cons	−0.158	−2.10**	−0.407	−3.30***	−0.269	−3.19***	−0.518	−3.64***
Industry&Year FE	Yes		Yes		Yes		Yes
R^2	0.310		0.198		0.352		0.217
F-value	86.57***		55.72***		92.51***		61.27***
Observation	364		364		364		364

Notes: ***, **, and * reflect significance at 1, 5, and 10% levels, respectively.

Moreover, the findings reveal that there is a positive and significant impact of the independent variable (Cash) for both ROA and ROE, as the coefficient of regression is 0.055 and 0.059, at a level of significant p < 0.01 and 0.05, respectively. Thus, the results confirm that firms’ performance is positively correlated with their cash holdings, indicating that elevated levels of cash reserves are linked to better performance. This positive association can be driven by the fact that large cash holdings allow firms to avoid costly external financing and provide flexibility to capitalize on profitable investment opportunities.

These empirical findings provide support for Hypothesis 1 and liquidity preference theory which claims that Managers hold onto cash for various reasons. Firstly, they may use it as an internal financial resource to take advantage of potential investment and growth opportunities. Alternatively, they may retain it to deal with unexpected risks or contingencies. Additionally, retaining cash can serve as a cost-effective means of financing, as it reduces dependence on external sources of funding that may incur high transaction costs due to market inefficiencies and information asymmetry (La Rocca & Cambrea, 2019).

This is aligned with the notion that financial market competition leads to an increasing in a company’s cash holdings, which in turn improves its performance. This conclusion aligns with recent research indicating a positive association between cash holdings and firms’ performance (Alnori, 2020; Jabbouri & Almustafa, 2021; Lian & Ma, 2021; Martínez-Sola et al., 2013; Morellec & Schürhoff, 2011; Yun et al., 2021). In contrast, this result contradicts previous research that reached either negative or no significant relationship (Frésard & Salva, 2010; Gao et al., 2013; Harford et al., 2008; La Rocca & Cambrea, 2019; Tran, 2020). Furthermore, the above findings imply a positive and significant association between both (ROA, ROE) and control variables (Firm size, NWC, and CF).

Model (2) in Table 5 clarifies the regression result of board characteristics on company performance (ROA and ROE). It was fit and demonstrated statistically significant for both ROA and ROE, as well as the adjusted R² within the model Column (2.1) and (2.2) was 35.2% and 21.7%. Furthermore, the findings reveal that an expand in Board Size has a significant positive impact on ROA (β = 0.079, p < 0.05), However, its relationship with ROE is positive but not statistically significant. These findings correspond to previous research conducted in the literature (Ali, 2020; Fariha et al., 2022; Rashid, 2020). Moreover, the Egyptian Code for Corporate Governance (ECCG) of 2016 exhibits inadequacy in addressing this matter, as it refrains from prescribing a specific numerical requirement for the Board of Directors. Instead, it mandates that the Board be constituted by an appropriate number of members conducive to the effective discharge of its functions and responsibilities, encompassing the establishment of its committees. These results indicate that larger board sizes in Egyptian companies are associated with better financial performance, which suggests that firms could gain advantages by virtue of a larger board size, as the knowledge and abilities of the additional members could be utilized to enhance the companies’ performance.

Moreover, the level of BGD positively and significantly correlates with both ROA and ROE, with β equal to 0.111 and 0.185, respectively, at p < 0.05. These findings affirm the idea that having a more diverse gender representation could lead to smoother and more effective decision-making processes, resulting in improved financial performance and investment efficiency. These findings correspond to previous research conducted in the literature (Agyei-Mensah, 2021; Darko et al., 2016; Issa et al., 2021; Issa & Fang, 2019; Sarhan et al., 2019), and are supported by both the agency theory and resource dependence theory. Female representation on boards has been shown to enhance reporting practices among Egyptian firms, thus reducing agency problems and providing strategic resources that contribute to the growth and improved performance of these companies (Abdelazim et al., 2023). Furthermore, the ECCG underscores the significance of Board Gender Diversity (BGD) within the framework of equality and diversity regulations. A recent development in this context is reflected in Decision No. (123) of 2019 issued by the Egyptian Financial Supervisory Authority, amending Decision No. (11) of 2014 pertaining to the composition of the Authority’s Board of Directors. This amendment specifically addresses regulations related to the inclusion and exclusion of securities on the EGX. An augmentation to Article (6) introduces item (f), explicitly stipulating that ‘a company’s board of directors must include at least one female member’. Moreover, the second article of the resolution mandates that companies integrate at least one female member into their board of directors, with a requirement to effectuate necessary adjustments by 31 December 2020, whenever feasible, or during the initial round of elections for the company’s board of directors.

Additionally, Board Independence has a significant and negative impact on ROA with a coefficient of β = −0.011 and a p-value <0.05. Moreover, board independence has the same negative impact on ROE yet this impact is not significant statistically. These outcomes do not support either the resource dependence theory or agency theory. These results are in accordance with the results reported by Fariha et al. (2022), which suggest that the existence of independent board members does not always result in enhanced corporate governance and FP. However, these findings go against the conclusions of Agyei-Mensah (2021), Terjesen et al. (2016), and Wang et al. (2019). Therefore, we argue that the negative effect of independent directors on company performance may be related to independent directors’ inefficiency in monitoring and lack of meaningful participation in decision-making processes, serving primarily to provide legitimacy to their firms. While the ECCG prioritized augmenting the presence of non-executive members, specifically external directors, on corporate boards, this emphasis stems from the intention to enhance the efficacy of board oversight in monitoring firm performance. Such measures are envisioned to contribute to the amelioration of the quality of accounting information, consequently fostering heightened confidence among stakeholders. In accordance with the Egyptian Governance Guide, it is prescribed that a majority of Board of Directors members should be non-executive, encompassing a minimum of two independent members possessing technical and analytical proficiency for the mutual benefit of the Board and the firm.

Furthermore, the presence of Role Duality shows a negative and non-significant impact on both ROA and ROE. This outcome agrees with the agency theory’s theoretical predictions, which suggest that CEO duality results in concentrated decision-making authority, potentially harming the governance role of the board, reducing its monitoring capacity, hindering independence and transparency, and ultimately leading to low FP (Puni & Anlesinya, 2019), similar to results of previous studies (such as Abdulsamad et al., 2018 and Arora & Sharma, 2016). Further, the existence of role duality can lead to the domination of the board by the CEO, resulting in a lack of accountability and transparency that ultimately harms the performance and growth of the company (Khatib, 2023). Moreover, the ECCG underscores the imperative for the Board of Directors to elect the Chairman and appoint the Managing Director separately, discouraging the amalgamation of these roles. In instances where the positions are consolidated, disclosure of the rationale is mandated in the company’s annual report and website. In alignment with international best practices, the ECCG recommends appointing an independent vice-chairman of the Board to preside over meetings addressing the executive management’s performance. Notably, the Egyptian Financial Supervisory Authority introduced Resolution No. (47) of 2020 on 22 March 2020, amending Resolution No. (11) of 2014 concerning the listing and delisting of securities on the EGX. The first article of this amendment introduces Clause Nine to Article (6), explicitly prohibiting the simultaneous occupancy of the positions of Chairman of the Board of Directors, Managing Director, and/or CEO within a company.

Finally, Meeting Frequency has a positive significant impact on ROE (β = 0.033, p < 0.05), whereas its relationship with ROA is positive but not statistically significant. This result corresponds to the theoretical predictions of the agency theory, which advocates that holding frequent board meetings can enhance shareholder value by minimizing conflict of interest and agency costs (Ntim & Osei, 2011). This highlights the dedication of board members during board meetings in discussing organizational strategies and policies, which agrees with the results (Agyei-Mensah, 2021; Fariha et al., 2022; Mohamed Zabri et al., 2016). Additionally, the ECCG specifies that the Board of Directors is required to convene at least once every three months. Moreover, the Board is empowered to engage the expertise of individuals both internal and external to the firm as deemed necessary for deliberations on specific matters relevant to the firm’s operations. The annual report of the company, as well as the report of the Board of Directors, must include disclosure of the total number of meetings held during the year. Furthermore, any instances of non-attendance by board members at either Board meetings or meetings of committees derived from it must be explicitly detailed in the firm’s annual report and the Board of Directors’ report. Therefore, this outcome partially validates the second hypothesis (H2) of the study. For control variables, the results indicate a significant and positive association between both (ROA and ROE) and control variables (Firm size, NWC, and CF).

Table 6 summarises the findings of the System GMM analysis. Among the variables we are focusing on, both Cash and Bdiversity have a positive association with ROA and ROE. And BSZ, Bmeet have a positive association with both ROA and ROE, respectively. whereas Bind has a negative impact on ROA. Furthermore, DUAL has a negative but insignificant impact on both ROA and ROE. These results align with those reported in Table 5, indicating that our findings have not been affected by endogeneity.

Table 6. Results of two-step system GMM analysis.

Variables	Model 1				Model 2
	ROA		ROE		ROA		ROE
	Coef	t-Stat	Coef	t-Stat	Coef	t-Stat	Coef	t-Stat
ROAt-1	0.251	2.67***	—	—	0.250	3.09***	—	—
ROEt-1	—	—	0.368	4.09***	—	—	0.365	3.86***
Cash	0.318	2.02**	0.171	1.98**	—	—	—	—
BSz	—	—	—	—	0.014	3.79***	0.009	0.91
Bind	—	—	—	—	−0.012	−3.04***	−0.006	−1.17
DUAL	—	—	—	—	−0.007	−0.79	−0.014	−1.09
Bdiversity	—	—	—	—	0.106	2.00**	0.144	1.97**
Bmeet	—	—	—	—	0.002	0.52	0.004	2.07**
FSZ	0.008	2.57**	0.006	1.83*	0.003	1.00	0.002	0.61
NWC	0.028	0.59	0.055	1.04	0.049	1.79*	0.013	0.34
CF	0.203	1.37	0.040	1.25	0.034	0.34	0.152	0.94
Cons	−0.166	−2.27**	−0.102	−1.25	−0.061	−1.00	−0.018	−0.20
Industry&Year FE	Yes		Yes		Yes		Yes
F-value	164.71***		248.81***		282.63***		264.53***
AR (1)	−3.07***		−4.43***		−3.69***		−4.19***
AR (2)	−0.54		−0.13		1.11		−0.22
Sargan test	6.61		7.07		7.03		6.93
Hansen test	7.23		5.26		6.26		3.85
Observation	364		364		364		364

Notes: ***, **, and * reflect significance at 1, 5, and 10% levels, respectively.

7. Robustness analysis

We have conducted two robustness tests to guarantee the stability and reliability of our empirical findings.

7.1. Using alternate measurements of the independent variables

Table 7 presents the results of sensitivity tests where different measurements of independent variables were utilized to validate our findings, and the analysis was re-estimated by utilizing an alternative indicator of Cash holding, which is the natural log of one added to the ratio of cash and cash equivalents to total assets (LNCash), according to the prior studies (Banjade & Diltz, 2022; Habib et al., 2017). Further, we measured board size and meeting frequency with the natural logarithm of the aggregate count of board members and the aggregate count of board meetings held throughout the fiscal year, respectively (Issa & Zaid, 2021). In addition, we measured board independence as the ratio of the non-executive independent directors on the board (Andoh et al., 2023; Issa & Zaid, 2021). Moreover, we measured role duality as the proportion of the board members who simultaneously hold executive positions (Saona et al., 2020). Finally, we measured BGD as a binary variable coded as 1 if a firm has at least one female on its board, and 0 otherwise (Abdelazim et al., 2023; Suherman et al., 2021). Model 1 and Model 2 results were similar to the previous findings.

Table 7. Results of regression analysis utilizing alternative measures of independent variables.

Variables	Model 1				Model 2
	ROA		ROE		ROA		ROE
	Coef	t-Stat	Coef	t-Stat	Coef	t-Stat	Coef	t-Stat
LNCash	0.103	3.36**	0.125	3.07***	—	—	—	—
LNBSZ	—	—	—	—	0.002	1.89*	0.002	0.11
Bind	—	—	—	—	−0.020	−1.95*	−0.056	−0.88
DUAL	—	—	—	—	−0.009	−0.10	−0.068	−0.45
Bdiversity	—	—	—	—	0.031	2.72***	0.042	2.61***
LNBmeet	—	—	—	—	0.002	1.39	0.003	1.83*
FSZ	0.009	2.44***	0.022	3.68***	0.008	2.01**	0.023	3.51***
NWC	0.080	4.29***	0.098	3.85***	0.102	5.62***	0.123	4.92***
CF	0.333	5.83***	0.187	3.72***	0.250	6.54***	0.216	4.52***
Cons	−0.169	−2.18**	−0.421	−3.41***	−0.168	−1.80*	−0.543	−3.62***
Industry&Year FE	Yes		Yes		Yes		Yes
R^2	0.304		0.190		0.314		0.192
F-value	86.78***		59.38***		86.42***		62.34***
Observation	364		364		364		364

Notes: ***, **, and * reflect significance at 1, 5, and 10% levels, respectively.

7.2. Using fixed-effects regression methodology

To address the possibility of omitted-variable bias caused by unobservable company-level characteristics affecting the relationship between our dependent and independent variables, we employ the fixed-effects regression method (Gull et al., 2023). Therefore, we re-estimate Models (1) and (2). The outcomes of our fixed-effects analysis, presented in Table 8, align with the primary results, indicating that our findings remain unaffected by potential unobservable heterogeneity at the firm level.

Table 8. Results of fixed effects approach.

Variables	Model 1				Model 2
	ROA		ROE		ROA		ROE
	Coef	t-Stat	Coef	t-Stat	Coef	t-Stat	Coef	t-Stat
Cash	0.036	1.99**	0.063	2.44**	—	—	—	—
BSZ	—	—	—	—	0.013	4.17***	0.120	1.13
Bind	—	—	—	—	−0.012	−3.78***	−0.021	−1.56
DUAL01	—	—	—	—	−0.005	−0.70	−0.041	−1.02
Bdiversity%	—	—	—	—	0.081	2.25**	0.334	2.44**
Bmeet	—	—	—	—	0.001	0.74	0.044	2.24**
FSZ	0.008	3.32***	0.065	4.35***	0.005	1.89*	0.068	4.57***
NWC	0.111	7.26***	0.077	2.65***	0.122	8.52***	0.093	3.24***
CF	0.389	8.87***	0.189	3.95***	0.366	8.48***	0.220	4.56***
Cons	−0.148	−3.01***	−0.289	−4.22***	−0.124	−2.47**	−0.369	−4.09***
Firm&Year FE	Yes		Yes		Yes		Yes
R^2	0.321		0.083		0.359		0.085
F-value	42.32***		11.98***		24.97***		7.51***
Observation	364		364		364		364

Notes: ***, **, and * reflect significance at 1, 5, and 10% levels, respectively.

8. Conclusion, limitations, and future research

This research investigates the correlation between cash reserves, board governance attributes, and financial performance (FP) in non-financial firms listed on the EGX. The sample comprises 52 companies with 364 instances. The findings reveal that cash holdings, board size, meeting frequency, and BGD have a positive and significant impact on firm performance. In contrast, board members’ independence negatively impacts firm performance. Additionally, no significant impact is observed regarding role duality on firm performance.

Having said this, the current study findings support early research that concluded that the increased cash holdings are linked to improved firm performance. This positive relationship can be attributed to the advantages of having substantial cash resources, such as the ability to avoid costly external financing and the flexibility to seize profitable investment opportunities. Furthermore, our research suggests that Egyptian companies could derive benefits from having larger boards that exhibit greater gender diversity and maintain higher cash reserves. However, our findings do not support the conclusions drawn by Agyei-Mensah (2021), Terjesen et al. (2016), and Wang et al. (2019), who have suggested a positive impact of independent directors on corporate governance and firm performance. We argue that the negative effect observed in our study may be due to the inefficiency of independent directors in monitoring activities and their limited involvement in meaningful decision-making processes, as their primary role often revolves around providing legitimacy to their respective firms.

Based on the above findings, this study has some implications for Egyptian companies, regulators, and investors. It is recommended that Egyptian companies prioritize considerations of cash holdings, board size, meeting frequency, and gender diversity when selecting their board members, as these factors have been found to enhance overall performance. Additionally, it is advisable for companies to pay attention to the percentage of board members independence, as it is commonly believed to improve corporate governance and subsequently enhance company performance. However, our results suggest the opposite effect. Furthermore, this study could provide valuable insights for regulators and policymakers in Egypt. The findings highlight the importance of board governance characteristics and their impact on firm performance. As a result, regulators and policymakers should closely monitor the enforcement of the Egyptian code for corporate governance, particularly the sections that address board composition and size. Lastly, investors should take into account the aforementioned results when making investment decisions regarding Egyptian listed companies. The study reveals that the amount of cash reserves, board size, board governance diversity, and the independence of board members have a direct impact on company performance and profitability. Hence, investors need to consider these factors to make informed investment choices.

While this research makes a valuable contribution, it is important to acknowledge certain limitations that present opportunities for future investigation. One limitation is the focus of the study solely on non-financial companies listed on the EGX, which may restrict the generalizability of the findings to other industries or firms not listed on the EGX. Furthermore, the study relies solely on quantitative data, which may limit a comprehensive understanding of the underlying mechanisms driving the observed relationships. Additionally, the study’s timeframe (2013–2019) may not fully capture the impact of recent changes in the Egyptian market and regulatory landscape. To address these limitations, future research could take a more expansive approach by enlarging the sample size and including companies from diverse sectors and stock indices. Moreover, researchers could explore the influence of external factors on financial performance, such as political instability, political connections, and currency fluctuations. Additionally, it would be worthwhile to investigate the impact of board governance characteristics on other aspects of financial performance, such as innovation and sustainability. Finally, replicating the study in other Middle Eastern and/or African countries, particularly in South African markets where related studies are scarce, would further enrich the body of knowledge in this field.

Author contributions

Conceptualization, M.A.S.A., A.B.M.M., S.I.A., and S.A.S.A.; methodology, M.A.S.A., A.B.M.M., and S.A.S.A.; software, S.A.S.A.; validation, M.A.S.A., A.B.M.M., and S.I.A.; analysis and interpretation of the data, M.A.S.A., A.B.M.M., S.I.A., and S.A.S.A.; the drafting of the paper, M.A.S.A., A.B.M.M., and S.A.S.A.; revising it critically for intellectual content, M.A.S.A., A.B.M.M., S.I.A., and S.A.S.A.; funding acquisition, M.A.S.A. and A.B.M.M. All authors have read and agreed to the published version of the manuscript.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

Data are available upon request from researchers who meet the eligibility criteria. Kindly contact the corresponding author privately through e-mail.

Additional information

Funding

This research was funded by the Deanship of Scientific Research, Vice Presidency for Graduate Studies and Scientific Research, King Faisal University, Saudi Arabia [Project No. GRANT5319].

Notes on contributors

Mohamed Ali Shabeeb Ali

Mohamed Ali Shabeeb Ali is an assistant professor of accounting in College of Business Administration, King Faisal University, Al-Ahsa, Saudi Arabia; and a lecturer of accounting in Faculty of Commerce, South Valley University, Qena, Egypt.

Saleh Aly Saleh Aly

Saleh Aly Saleh Aly is a lecturer of accounting in Faculty of Commerce, Beni Suef University, Beni Suef, Egypt.

Samir Ibrahim Abdelazim

Samir Ibrahim Abdelazim is an assistant professor of accounting in Faculty of Commerce, Beni Suef University, Beni Suef, Egypt and assistant Professor in College of Business Administration, Majmaah University, Al Majma’ah, Saudi Arabia.

Abdelmoneim Bahyeldin Mohamed Metwally

Abdelmoneim Bahyeldin Mohamed Metwally is an assistant professor of accounting in College of Business Administration, King Faisal University, Al-Ahsa, Saudi Arabia; and an assistant professor and former head of accounting department in Faculty of Commerce, Assiut University, Assiut, Egypt.