DOES OPTIMAL CASH HOLDING MATTER IN MAINTAINING AND IMPROVING PROFITABILITY?

Purpose: This study aims to identify optimal cash holding factors and how they impact Pakistani-listed enterprises' profitability. Design/Methods: The trade-off and pecking order theories are investigated to develop hypotheses for testing the cash holding threshold influence on a firm's profitability on 201 selected firms extracted from the Osiris database between 2009 and 2018. Results/ Findings: The findings of the present study indicate that cash holdings, liquidity, financial flexibility, and operating cash flow significantly impact profitability. There is a two-threshold effect between the cash holding ratio and business profitability. The coefficient value is positive but decreases as the cash holdings ratio falls below 5.3%, indicating a non-linear relationship. Originality: The elements affecting the ideal cash holding ratio that Pakistani listed companies must maintain to ensure cash sustainability are examined in this study. Previous studies have focused on the determinants and motivations for cash holding. Still, it has never addressed how much cash a company should keep to achieve long-term profitability or cash independence.