Does Carbon Risk Affect Corporate Cash Holdings?
DOI: https://doi.org/10.62517/jse.202511112
Author(s)
Li Ruoxuan, Xie Xuan
Affiliation(s)
School of Management, Sichuan Agricultural University, Chengdu, China
Abstract
Against the backdrop of increasingly severe climate change issues, reducing corporate carbon emissions and promoting green transformation has become an important research topic at present. This research examines the impact mechanism of carbon risk has on corporate cash holdings, using the sample of Chinese A-share listed companies in Shanghai and Shenzhen from 2011 to 2021. We find that a significant positive correlation between carbon risk and corporate cash holdings. The mechanism analysis shows that companies with higher carbon risk will hold more cash to cope with more challenging financing constraints and higher transaction costs, due to preventive and transactional motives. Additional analyses indicate that the positive effect of carbon risk has on cash holdings is more pronounced in high-carbon emitting industries; in carbon emission trading cities, regions with high levels of financial development, and areas with high public environmental attention, the increasing effect of carbon risk on corporate cash holdings will be suppressed. Overall, our findings enrich the literature on economic effects of carbon risk on the firm level, and provide reference for policy makers, industry development, and corporate green transformation in the context of carbon risk.
Keywords
Carbon Risk; Cash Holding; Preventive Motive; Transactional Motive
References
[1]Balachandran B., Nguyen J. H. (2018) Does carbon risk matter in firm dividend policy? evidence from a quasi-natural experiment in an imputation environment. Journal of Banking and Finance (96), 249-267.
[2]Brown N., Deegan C. (1998) The Public Disclosure of Environmental Performance Information: A Dual Test of Media Agenda Setting Theory and Legitimacy Theory. Accounting and Business Research 29(1), 21-41.
[3]Chava, S. (2010) Environmental externalities and cost of capital. Social Science Electronic Publishing, 60(9), 2223-2247.
[4]Cheng B, Xiong T, Yin J (2023) Improvement of Judicial Environment and Corporate Cash Holdings. Accounting Research (05), 65-77.
[5]Cheng H, Feng Y , Dong D (2024) Can Corporate Greenhushing Hedge the Carbon Risk Premium? Securities Market Herald (02), 56-67.
[6]Chu Y, Liu A. Y, Tian X (2021) Environmental Risk and Green Innovation: Evidence from Evacuation Spills.Social Science Electronic Publishing.
[7]Clarkson P. M., Li Y., Pinnuck M., et al. (2015) The Valuation Relevance of Greenhouse Gas Emissions under the European Union Carbon Emissions Trading Scheme. European Accounting Review 24(3), 551-580.
[8]Demirguckunt A., Maksimovic V.(1998) Law, Finance, and Firm Growth. Journal of Finance, 53.
Di L, Luo Y, Jiang W, Chen C (2020) Does Customers' Annual Report Tone have a Supply Chain Contagion Effect?——From the Perspective of Corporate Cash Holdings. Journal of Management World 36(08), 148-163.
[9]Fang X, Hu D (2023) Corporate ESG Performance and Innovation: Empirical Evidence from A-share Listed Companies. Economic Research Journal 58(2), 91-106.
Faulkender M., Wang R. (2006) Corporate Financial Policy and the Value of Cash. Journal of Finance 61(4), 1957-1990.
[10]Foley F. C., Hartzell J. C., Titman S., et al. (2007) Why Do Firms Hold So Much Cash? A Tax-Based Explanation. Journal of Financial Economics 86(3), 579-607.
[11]Guo C, Zhang S, Chen S (2024) Does Carbon Risk Travel along the Supply Chain? Evidence from Corporate Default Risk. Economics Letters, 236.
[12]Guo J, Fang Y, Guo Y (2024) Environmental Regulation, Short-term Failure Tolerance and Firm Green Innovation: Evidence from the Practice of Green Credit Policy. Economic Research Journal 59(03), 112-129.
[13]Han Liyan, Xie Chen, Jin Jiayu, et al. (2023) Effect of Low-Carbon Innovation on Carbon Risk: International Firm-Level Investigation. International Review of Financial Analysis, 90.
[14]Hoffmann, V. H., Busch, T. (2010) Corporate carbon performance indicators - carbon intensity, dependency, exposure and risk. Journal of Industrial Ecology 12(4), 505-520.
[15]Hu J, Fang Q, Long W (2023) Carbon Emission Regulation, Corporate Emission Reduction Incentive and Total Factor Productivity: A Natural Experiment Based on China’s Carbon Emission Trading System. Economic Research Journal 58(04), 77-94.
[16]Hu J, Huang N, Shen H (2020) Can Market-Incentive Environmental Regulation Promote Corporate Innovation? A Natural Experiment Based on China's Carbon Emissions Trading Mechanism. Journal of Financial Research (01), 171-189.
[17]Hu Y, Zhang X, Li J (2019) Export, Geography Conditions and Air Pollution. China Industrial Economics (09), 98-116.
[18]Jensen M. C. (1986) Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review 76(2), 323−329.
[19]Jia Z, Lin B, Wen S (2023) Carbon Trading Pilots and Total Factor Productivity——With Discussions on Porter Hypothesis, Technology Diffusion and Pollution Paradise.Economic Perspectives (03), 66-86.
[20]Liu X, Fang Q, Hu J (2024) Carbon emission trading mechanism and practice in China: From the perspective of cost of equity capital. China Soft Science (05), 142-151.
[21]Luo J, Wu Y (2023) Does air pollution stimulate corporate green innovation? Systems Engineering-Theory & Practice 43(02), 321-349.
[22]Miller M. H., Orr D. (1966) A Model of the Demand for Money by Firms. The Quarterly Journal of Economics 80(3), 413-435.
[23]Mulligan C. B. (1997) Scale Economies, the Value of Time and the Demand for Money: Longitudinal Evidence from Firms. Journal of Political Economy (105), 1061-1079.
[24]Myers S. C., Majluf N. S. (1984) Corporate Financing and Investment Decisions when Firms Have Information That Investors Do Not Have. Journal of Financial Economics 13(2), 187-221.
Nguyen J. H., Phan H. V. (2020) Carbon risk and corporate capital structure. Journal of Corporate Finance, 64.
[25]Ning X, Mo L, Zhang Q (2024) Can the Digital Development of Banks Help Small and Micro Enterprises to Alleviate Difficulties? Empirical Evidence Based on the Data of Urban Commercial Banks. Nankai Business Review 27(06), 39-50.
[26]Opler T., Pinkowitz L., Stulz R., et al. (1999) The Determinants and Implications of Corporate Cash Holdings. Journal of Financial Economics 52(1), 3-46.
[27]Pástor, Stambaugh R. F., Taylor L. A., et al. (2021) Sustainable Investing in Equilibrium. Journal of Financial Economics 142(2), 550-571.
[28]Phan D. H. B., Tran V. T., Ming T. C., et al. (2022) Carbon risk and corporate investment: a cross-country evidence. Finance Research Letters, 46.
[29]Porter M. E., Linde C. V. D. (1995) Toward a New Conception of the Environment-Competitiveness Relationship. Journal of Economic Perspectives 9(4), 97-118.
[30]Rajan R. G., Zingales L. (1998) Financial Dependence and Growth. American Economic Review 88(3), 559-586.
[31]Tao Y, Hou W, Liu Z, Yang Z (2024) How can Public Environmental Concerns Enhance Corporate ESG Performance? Based on a Dual Perspective of External Pressure And Internal Concerns.Science of Science and Management of S.& T. 45(07), 88-109.
[32]Wang J, Sun M, Yu X (2022) The Porter Hypothesis Under Carbon Risk and Audit Pricing——Evidence based on the Paris Agreement. Auditing Research (05), 75-84.
[33]Wang X (2022) Analysis of the Impact of Carbon Risk on Corporate Debt Cost Based on Media Attention:Empirical Evidence from A-share Listed Companies in China.Journal of Technology Economics 39(04), 95-102+131.
[34]Yu J, Guo K, Gong L (2019) Macro-Policy Uncertainty and Corporate Cash Holdings. China Economic Quarterly (3), 987-1010.
[35]Zhang R, Zhang Y (2021) Free Trade Zone and Corporate Cash Holding: Empirical Evidences from Chinese Listed Companies. Contemporary Finance & Economics (10), 127-137.
[36]Zhang S, Tan F (2024) Research on the Impact of Carbon Risk Exposure on Corporate Mergers and Acquisitions. Communication of Finance and Accounting (03), 64-69.
[37]Zhang W, Yang K, Li Y (2023) Climate Risk and Precautionary Cash Holdings: Evidence from Chinese Listed Companies. Frontiers in Environmental Science, 11.
[38]Zhang Y, Yuan B, Zheng J, Deng Y (2022) Strategic Response or Substantive Response? The Effect of China's Carbon Emissions Trading Policy on Enterprise Green Innovation.Nankai Business Review, 1-24.
[39]Zheng Z, He J (2024) Social Credit, Transaction Costs, and Division of Labor. Journal of Finance and Economics 50(02), 139-153.
[40]Zhong T, Ma F (2022) Carbon Reduction Effect of Enterprise Digital Transformation: Theoretical Mechanism and Empirical Test. Jianghai Academic Journal (04), 99-105.
[41]Zhou J, Liu K, Yu J, Liao S (2023) Front-Prevention or End-Treatment? The Low-Carbon City Pilot Policy and Investment Strategies Selection on Environmental Protection. Business and Management Journal 45(10), 147-167.
[42]Zhou Y, Shen H (2017) Supervision of environmental policy enforcement and firm environmental performance: evidence from a quasi-natural experiment. Nankai Business Review 20(06), 73-82.