International Trade and Cash Management: Does Financial Inclusion Matter in OIC Countries?

Abstract

This chapter assesses the impact of international trade on cash management by considering the financial inclusion for 2,202 non-financial firms in Organization of Islamic Cooperation (OIC) countries over 2004-2021. Empirical results demonstrate that there is a positive (negative) relationship between trade volume and cash holdings when financial inclusion is higher (lower). This result is in line with the precautionary motive of cash. Non-financial firms operating in OIC countries can leverage these insights to inform their cash management strategies. Firms may consider adjusting their cash reserves based on fluctuations in trade volume and prevailing levels of financial inclusion. This proactive approach to cash management can help firms better navigate uncertainties in the international trade environment.