The impact of digital transformation on cash holding: evidence from Saudi Arabia

Purpose The purpose of this study is to determine whether there is a correlation between cash holding and digital transformation. Design/methodology/approach The authors used a linear regression analysis on a sample of nonfinancial firms listed on the Saudi Stock Market from 2019 to 2022. Findings The authors find that cash holding and digital transformation are positively and significantly related, according to the research. The authors also provide a series of sensitivity analyses that validate the findings using other cash holding and digital transformation metrics. This study uses the lag variable approach, the two-stage least squares method and propensity score matching estimates to account for the possibility of exclusion and reverse causality, sample selection and model misspecitation. These techniques support the findings as valid and trustworthy. Originality/value This paper seeks to establish that digital transformation has a positive effect on cash holdings, which can help managers in the design of their technological investments and management of their cash policies. Occasionally, it is possible for the firms to have a high cash balance that can enable them to absorb the costs involved in the digital investments and also control the operation risks that are connected with digital change. In policymaking, the results raise awareness of the need to nurture the right conditions that would lead to the uptake of digital technology. Policymakers, therefore, need to support firms’ digital transformation by improving the technological base and putting in place apt legal frameworks that allow firms to operate in a safer and more efficient manner.