Human rights and value of cash: Evidence from Islamic and non-Islamic countries

Abstract

This study examines whether and how human rights (HR) have bearings on the value of cash. Given the positive effect of HR improvement on corporate governance (CG) and that of CG on cash value, HR should positively affect cash value through CG. Using 23 Organization of Islamic Cooperation countries and 88 other countries during the period 1995–2019 as the sample, this study finds that the value of cash and excess cash is lower in Islamic countries than in other countries. Additionally, HR have a positive effect on cash value, but this effect is weaker for Islamic countries than for other countries. Furthermore, economic development (ED) (rule of law (RL)) reinforces the positive effect of HR on cash value, and this effect is stronger (weaker) for Islamic countries than for other countries. Study results provide important implications. Given the observed striking differences in results between Islamic and other countries, future related research should consider them to improve validity and reliability of empirical results. Multinationals or firms that consider establishing subsidiaries in foreign countries should also consider country-specific factors, like types of countries, HR, ED, and RL, because they may affect the agency and external financing costs. Furthermore, national governments can evaluate the effectiveness of HR promotion by referring to the study results regarding HR's positive effect on cash value such that they can fine tune their HR and economic policy as well as enforcement of RL to better achieve their intended goal of improving HR and CG.