The Impact Of Cash Holdings On The Dynamic Adjustment Of Capital Structure: Evidence From ECOWAS

Financial controllers initiate policies for many firms due to poor management of companies’ finances,especially in developing economies.The major problems the state banks identified were;managers were keeping huge deposits in the form of cash,managers were making reckless borrowing,and firms were not able to meet short-term debts and dividend payments Enterprises are trying to find an optimal level that can balance the amount that cash institutions should hold to meet their day-to day operational activities by minimizing cost.Companies either raise capital(debts or equity)from long-or short-term debts which come with financial obligation.An optimum purpose is to find the affiliation between cash holdings and capital structure and the speed at which these enterprises adjust to balance cost.This study is therefore conducted to resolve the current issues of banking issues in ECOWAS countries by finding the association that exist between cash holdings and capital structure and the speed it takes to adjust.For the period 2009-2020,data were obtained from firms registered on the ECOWAS countries’ stock markets.Firms with missing or incomplete data were deleted,and financial statements that were not audited,as well as financial statements in another language other than English,were omitted.This research analysis was carried out through various validity and reliability test such as the normality test,heteroscedasticity test,auto serial correction test,and multi-collinearity test to verify the data.Further panel data tests including unit root test,cointegration test,and granger causality test preceded the Random and Fixed effects Hausman test to regression before selecting the appropriate model for the hypothesis one testing.This study finally employed the two-step GMM analysis to check the hypotheses empirically.The outcome of the fixed effects Hausman test indicated that cash holding has a negative and significant affiliation with the capital structure of firms listed on the ECOWAS Stocks for the period of the study.It is evident from the outcome that cash holding has a positive effect on the speed with which firms adjust their capital structure dynamically,with 51.37% of adjustment speed towards optimal debt.In order to make complete adjustment towards the goal,the total period to be taken is 1.95 years.Theoretically,this study is built on the pecking order theory and the trade-off theory.The findings that determine the cash holding is supported by both theories assertation.It is recommended that variables that impact the intended capital structure should be carefully considered by listed firms,as this will assist in the balance of debt and equity in the capital structure.This will assist firms in breaking into the worldwide market and improving their financial results.