Social insurance premiums and corporate cash holdings: Evidence from social insurance law in China

Lixing Deng, Shaojie Lai, Shiang Liu and Xiaoling Pu

Economic Modelling, 2022, vol. 114, issue C

Abstract: Corporate liquidity management is closely related to firms’ labor costs. The relationship between cash holdings and labor costs proxied by social insurance premiums is underexplored in existing literature. We explore the enactment of the 2011 Social Insurance Law in China to investigate how social insurance premiums affect corporate cash holdings policy. We find that higher social insurance premiums lead to larger cash holdings for labor-intensive firms through the increased operating leverage. Our findings are robust to falsification analysis, placebo tests, and alternative proxies for key variables. The positive effect is stronger for firms with better legal environments, state-owned enterprises, and those with more migrant workers. In addition, the excess cash holdings by labor-intensive firms increase future operating performance and firm value. Overall, our findings are in line with the precautionary theory.

Keywords: Social insurance law; Corporate liquidity; Cash holdings; Precautionary theory (search for similar items in EconPapers)
JEL-codes: G23 G30 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:114:y:2022:i:c:s0264999322001900

DOI: 10.1016/j.econmod.2022.105944

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