The Effect of the Relationship Between Accounting Conservatism and Cost of Debts on Cash Holding: Evidence from Egyptian Listed Companies

The purpose of this study is to see how the relationship between accounting conservatism and cost of debts affects cash holding. The paper also looks at the moderating impacts of firm size and leverage on this connection. It is based on a sample of data from the index (EGX100) for the 44 most active non-financial companies in the Egyptian stock market from 2018 to 2020. To put hypotheses to the test for data analysis, Fixed Effect Regression Models were utilized. The ratio of total interest paid on long-term loans is used to evaluate the cost of debts, whereas the cash holding is calculated as a ratio of cash and cash equivalent divided by total assets, for measuring accounting conservatism (Givoly &Hayn,2000) indicator is adopted. Many Egyptian listed firms are not conservative, according to the findings, and there is a statistically significant positive association between accounting conservatism and cash holding. Furthermore, the association between accounting conservatism and cost of debts has a statistically significant negative influence on cash holding, and leverage as a control variable has a significant effect in this relationship, although firm size has no effect. Accounting conservatism standard setters should concentrate on implementing accounting conservatism procedures in all Egyptian listed companies should report their financial accounts conservatively to benefit from low financial responsibilities or any burdens, such as the cost of debts, that have arisen as a result of investors and creditors' trust in conservative financial statements and firm management. This study adds to the body of knowledge about the relationship between accounting conservatism and cash holding, which has an impact on corporate performance in Egyptian listed companies.