The impact of corporate environmental responsibility on corporate cash holdings: evidence from the most polluting listed companies in China

Abstract

PurposeThe purpose of this paper is to examine the impact of corporate environmental responsibility (CER) on corporate cash holdings. This paper also investigates the moderating effects of ownership type and institutional environment between CER and corporate cash holdings.Design/methodology/approachThis study uses the data of the most polluting listed companies on the Shanghai and Shenzhen stock exchange markets over the period 2010–2019. CER data from Hexun.com (a professional CSR evaluation system) are used to measure CER performance. Two proxies are used to measure the level of cash holdings simultaneously, where CASH1 is calculated as the ratio of cash and cash equivalents to total assets, and CASH2 is calculated as the ratio of cash and cash equivalents to net assets (total assets minus cash and cash equivalents). Finally, multiple regression analysis is applied to test the research hypotheses.FindingsThe results show that environmentally responsible companies hold substantially less cash, and the result is statistically significant and robust even after using firm fixed effects and applying alternative measures of cash holdings or alleviating potential endogeneity. In addition, the results of cross-sectional tests show that the negative relation between CER and corporate cash holdings is concentrated among non-state-owned enterprises, and firms in provinces with more developed institutions. Furthermore, the result of the analysis of the economic consequence shows CER significantly increases the value of cash holdings.Research limitations/implicationsThis study focuses on China's institutional context, which limits the generalizability of the findings to other countries. However, the objective of this research can be studied in other institutional settings, so the above limitations provide a springboard for further research. Furthermore, the environmental protection investment, green technology innovation, and even pollutant discharge of companies can also be important indicators to measure the performance of firms in fulfilling their environmental responsibilities, which can be considered in future research.Practical implicationsThe findings of this study may help company management in China to establish a correct view of environmental responsibility to achieve corporate value creation and corporate sustainability. And our research can also provide the policy reference value for the Chinese government to further improve environmental protection policies and systems, guide enterprises to conduct green production to realize the country's vision of an environmentally friendly society.Originality/valueBased on the current background that countries in the world advocate the development of a green economy, this is the first study to examine the impacts of the environmental responsibility of the most polluting companies on corporate cash holdings and the value of cash holdings in the context of China, an emerging market.

The effect of air pollution on cash holdings and financial leverage

“…Jin and Xu (2022) show that firms with higher intellectual capital have lower financial leverage, whereas Shahdadi et al (2022) indicate a positive impact of intellectual capital on liquidity. Recently, researchers have started to focus on a new research area related to the Cash holdings and financial leverage 73 determinants of corporate financial policies, namely, environmental issues such as corporate environmental performance (Chang et al, 2018;Cuesta et al, 2019;Fard et al, 2019;Kalash, 2021a;Harper and Sun, 2019;Dimitropoulos and Koronios, 2021;Liao et al, 2021), air pollution (Li et al, 2019;Li et al, 2021;Tan et al, 2021a) and climate change (Yu et al, 2022). However, the empirical literature regarding this area is still in the infancy stage, especially that related to climate issues such as climate change and air pollution.…”