Does air pollution affect a firm's cash holdings?

Jianhua Tan, Zhidong Tan and Kam C. Chan

Pacific-Basin Finance Journal, 2021, vol. 67, issue C

Abstract: We study the effect of air pollution on a firm's cash holdings. Our findings suggest that when pollution is higher, firms hold more cash. The findings are robust to alternative metrics of air pollution and cash holdings and are consistent with the logic that air pollution drives pessimistic mood and/or weakened cognitive ability of management leading to poor operation and a firm's precautionary needs more cash due to pollution abatement or less bank loans. Additional analysis suggests that increase management expense and worsened managerial ability due to air pollution are the transmission channels. Furthermore, we document the increase in cash holdings lowers firm value. Overall, the impact of air pollution has a material impact on a firm's corporate policy in terms of cash holdings.

Keywords: Air pollution; Cash management; Precautionary motive (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:67:y:2021:i:c:s0927538x21000561

DOI: 10.1016/j.pacfin.2021.101549

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