Abstract
The recently invoked Environmental Inspection Program (EIP) in China, which aims to guarantee compliance with environmental rules in the industrial sector, is the basis for our investigation comparing the cash holdings for manufacturing firms in EIP cities and non-EIP cities. While previous studies examine the determinants of a firm's cash holdings, how environmental rule enforcement contributes to such decisions is unclear. Using a difference-in-differences approach, we compare the cash holdings before and after the EIP (2014–2018) for manufacturing firms headquartered in EIP cities and non-EIP cities. We find that firms in EIP cities hoard less cash than non-EIP cities, suggesting that EIP enhances cash management efficiency. The findings also indicate that the negative relation between the EIP and cash holdings is driven by poor governance and pollution severity.
| Original language | English |
|---|---|
| Article number | 105618 |
| Journal | Economic Modelling |
| Volume | 103 |
| Early online date | 12 Aug 2021 |
| DOIs | |
| Publication status | Published - Oct 2021 |
| Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2021 Elsevier B.V.
Funding
We acknowledge the helpful comments from Sushanta Mallick (the editor) and two anonymous reviewers. Tan acknowledges the financial support from the National Natural Science Foundation (72102110) and the Young Teachers' Scientific Project of Nanjing Audit University (no. 20QNPY015). Zhang acknowledges the financial support from the Research Projects of Hubei Centre for Accounting Development Research (no. 2019KJ003). The usual caveats apply.
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 11 Sustainable Cities and Communities
Keywords
- Agency motives
- Cash holdings
- Environmental rule enforcement
- Precautionary motives
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