The influence of geopolitical risk on cash holding - internal control as a moderating variable in Saudi banks listed

Abstract

The current study sheds light on the complex dynamics of cash holding decisions in the face of geopolitical risk and provides a new perspective on the internal control literature in Saudi banks. The purpose of the current study is to assess how internal controls enhance cash holdings and GPR management. The theoretical background offers a specific lens through which to examine how efficient internal controls affect cash management. Additionally, this study analyzes each component (Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities) to verify the specific role of internal control in GPR and cash holdings. The research methodology is based on Saudi banks listed during the period from 2010 to 2023, with a final sample of 334 firm-year observations. Statistical results show that geopolitical risk (GPR_THREAT, GPR_ACT, GPR_BROAD, GPR_NARROW) has a positive and significant effect on the level of cash holdings. These results indicate that increasing geopolitical risk leads to holding more cash to avoid probable risks in the surrounding environment in Saudi banks. Furthermore, the internal control index (control environment, risk assessment, control activities, information and communication, monitoring) also has a positive and significant effect on cash holdings. The results demonstrate that the interaction between the geopolitical risk components and the internal control index has a significant positive effect on cash holdings, meaning the internal control index supports the original relationship between GPR and cash holdings in Saudi banks.