It is a matter of immense pleasure to inform all well wishers that Syed Hamid Ali Shah, Lecturer at Quaid-e-Azam College of Commerce, University of Peshawar completed his PhD studies from Institute of Management Sciences, Peshawar. Dr. Attaullah Shah, Assistant Professor, IM Sciences supervised his PhD thesis titled “Impact of Judicial Efficiency on Corporate Cash Holdings: An International Study”. The thesis was reviewed by Professor Dimitrios Gounopoulos of Newcastle University Business School, Newcastle Upon Tyne, UK; Professor Jason Smith of Jon M. Huntsman School of Business Utah State University, USA; Dr. Zaheer Abbas, Assistant Professor, Department of Accounting & Finance, International Islamic University, Islamabad, and Dr. Romana Bangash, Assistant Professor, Institute of Management Sciences. Mr. S. Hamid Ali Shah successfully defended his thesis on September 21, 2017.  

In this thesis data of about 43,644 non-financial firms from 66 countries between 1997 and 2012 is analyzed to know if judicial efficiency (implementation of law) and the interplay between judicial efficiency and firm-specific variables influence corporate cash holdings. The results indicate that judicial efficiency directly influences corporate cash holdings. It is concluded that efficiency of judicial system make managers more risk averse and in turn they hoard more cash to avoid any possible bankruptcy which might be costly for them in the presence of efficient judicial systems. This ‘fear hypothesis’ is also tested in natural experiment window of the period of global financial crisis of 2007-08; results show that corporate cash holdings became more sensitive to judicial efficiency in the crisis period. Results of the study suggest that relatively riskier firms are more influenced by improvements in both content (creditor rights) and implementation of law (judicial efficiency). Additional analysis in this study reveals that in countries with stronger rule of law, the direct influence of judicial efficiency on corporate cash holdings further increases.

Findings of this study have important policy implications. As found, managers in countries with superior enforcement face a greater prospect (and consequently fear) of bankruptcy and the loss of jobs therefore, they tend to increase their cash holdings as a safeguard. However, these excessive levels of cash holdings do not generate economic returns and also increase the likelihood of non-value maximizing behavior of management. Thus, improvements in judicial efficiency and creditor rights have the potential to increase agency costs for shareholders. Therefore, it is imperative that alongside improvements in both judicial efficiency and creditor rights protection, rights of shareholder must also be equally protected. Extant literature suggests that improvements in the quality of judicial systems and creditor rights are desirable as they help in the development of debt market of a country; results of this study suggest that such improvements in isolation might not be good for the development of equity markets. Thus, better protection of creditor rights should be accompanied by better protection of shareholder rights. In fact, both the debt and equity markets are important pillars of an economy and therefore maintaining a balance in rights and obligations of the members of the two is important for economic development of a country.