Empirical Study of Agency and Stakeholder Theories in Explaining The Relationship between Employee Performance and Corporate Cash Holdings

The agency theory argument assumes that companies whose employees perform better face fewer agency issues and retain less cash. Conversely, the stakeholder theory argument assumes that companies with better employees retain more cash with better performance, because managers need more cash to motivate and meet employee needs. Therefore, the purpose of this study is to investigate the relationship between employee performance and the amount of corporate cash holdings, according to the agency and stakeholders theories.

This research is a quantitative research from the perspective of implementation process (data type), an applied research from the perspective of its implementation, an analytical research from the perspective of correlational research, a deductive-inductive research from the perspective of implementation logic and a temporal dimension , Is a longitudinal (post-event) research. To test the research hypothesis, the financial information of companies listed on the Tehran Stock Exchange between 2012 and 2018 has been used, so that after applying the restrictions in this study, the final sample consisting of 168 companies was selected. After measuring the research variables, multivariate linear regression analysis and statistical techniques of panel data and control of fixed effects at the industry and year level were used to test the research hypotheses. The hypothesis was also tested using Eviews econometric software and statistical techniques of integrated data.

The research findings indicate that according to the stakeholder theory, there is a positive relationship between employee performance and the corporate cash holdings. Also, the results of the supplementary analysis using the 2SLS approach indicate that this result is consistent with the main findings of the research.

According to stakeholder theory, companies need to maintain more cash to meet the demands of better performing employees.

This research can help to expand the existing limited theoretical foundations in the field of employee performance and add a new perspective to the literature on employee characteristics and management relationships with employees, and this expansion can provide services to make labor laws and regulations more applicable.