An Empirical Analysis of the Influence of the Relationship between Government, Business and Villagers on Cash Holding of Enterprises from the Perspective of Financial Engineering

Abstract

The hometown connection is one of the crucial relationships in China's relational society. Using the data of A-share listed companies, we examine how hometown connections between corporate executives and local government officials affect corporate cash holdings from the perspective of financial engineering. We find that hometown connections significantly decrease corporate cash holdings. After a variety of robustness tests, this result is still significant. We also find that hometown connections do have a significant impact on corporate cash holdings in provinces with a lower marketization index. One plausible channel for the hometown connections effect is reducing preventive motivation of corporate cash holdings.