Does culture matter in corporate cash holdings?

Yongning Deng and Sipeng Zeng

International Review of Finance, 2025, vol. 25, issue 1

Abstract: This paper identifies culture as an important factor affecting corporate cash holdings by using China and its national culture, Confucianism, as the setting. We find that firms located in regions with stronger Confucian culture hold persistently higher levels of cash. We employ an instrumental variable to draw causal inference. Confucian culture strengthens the effect of cash flow risk on cash holdings of financially‐constrained firms, suggesting precautionary motives as the underlying mechanism. We find that the culture effect remains intact after controlling for corporate governance heterogeneity, which rules out the agency motives. Lastly, firms' operating performance indicates that high cash holdings is an efficient outcome.

Date: 2025
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