Document Type

Article

Publication Date

2026

DOI

10.1002/jcaf.70048

Publication Title

The Journal of Corporate Accounting & Finance

Volume

Advance online publication

Pages

14 pp.

Abstract

This study is the first investigation of the relationship between corporate cash holdings and financial literacy (FL). We find that a one‐standard‐deviation increase in FL is associated with an 8%–27% reduction in corporate cash holdings, depending on the measure of FL used. Moreover, higher FL reduces the market value of excess cash, indicating that financially literate environments discourage value‐destroying cash accumulation. The results remain robust across alternative definitions of FL and cash holdings, estimation methods, and country subsamples. We further rule out the influence of endogeneity, refinancing risk, and variation in cash needs. Additional analyses identify agency costs as the primary channel through which FL affects corporate liquidity policies. The evidence suggests that financial literacy mitigates the agency motive for holding cash and serves as an effective substitute for monitoring opportunistic firm behavior when formal country governance structures are weak.

Rights

© 2026 The Author(s).

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.

ORCID

0000-0002-2974-4877 (Su Li), 0000-0002-6336-2223 (Arian Amidi)

Original Publication Citation

Yung, K., Kahibavil, R., Li, S., & Amidi, A. (2026). International evidence on the relationship between financial literacy and corporate cash holdings. The Journal of Corporate Accounting & Finance. Advance online publication. https://doi.org/10.1002/jcaf.70048

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