 Environmental rule enforcement and cash holdings: Evidence from a natural experimentJianhua Tan, Tao Chen, Peng Zhang and Kam C. Chan Economic Modelling, 2021, vol. 103, issue C 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. Keywords: Environmental rule enforcement; Cash holdings; Agency motives; Precautionary motives (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:103:y:2021:i:c:s0264999321002078 DOI: 10.1016/j.econmod.2021.105618 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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