Climate risk and corporate cash holdings: Mechanism and path analysis

Abstract

Based on climate change data of local cities and cash holding data of Chinese listed companies from 2011 to 2019, this article studies the impact of climate change on the level of corporate cash holdings and analyzes the path of climate change on the corporate cash holding level. The results show that under the influence of climate change, enterprises hold a high level of cash holdings to cope with risks and change variables to carry out robustness tests; meanwhile, the results remain consistent. By analyzing the source channels of enterprise cash, it is found that climate change increases the cash received from selling goods, providing services, and tax refund, but decreases the cash received from borrowing. The mechanism of action shows that climate change has increased the operating risk of enterprises and thus the level of cash holdings of enterprises, but climate change has not increased the financial risk of enterprises. The main reason is that under the influence of climate change, enterprises have reduced the debt level and thus reduced the financial risk. Heterogeneity analysis shows that the impact of climate change on corporate cash holdings is more obvious in state-owned enterprises, enterprises with high degree of financing constraints, and ecologically fragile regions. This study provides a new explanation for the influencing factors and approaches of corporate cash management strategies, which helps to better understand the cash holding strategies of listed companies in China. It also indicates that climate change is likely to be a macro incentive to aggravate the risks of real economy.

The effect of air pollution on cash holdings and financial leverage

“…Jin and Xu (2022) show that firms with higher intellectual capital have lower financial leverage, whereas Shahdadi et al (2022) indicate a positive impact of intellectual capital on liquidity. Recently, researchers have started to focus on a new research area related to the Cash holdings and financial leverage 73 determinants of corporate financial policies, namely, environmental issues such as corporate environmental performance (Chang et al, 2018;Cuesta et al, 2019;Fard et al, 2019;Kalash, 2021a;Harper and Sun, 2019;Dimitropoulos and Koronios, 2021;Liao et al, 2021), air pollution (Li et al, 2019;Li et al, 2021;Tan et al, 2021a) and climate change (Yu et al, 2022). However, the empirical literature regarding this area is still in the infancy stage, especially that related to climate issues such as climate change and air pollution.…”

How does climate risk matter for corporate green innovation? Empirical evidence from heavy-polluting listed companies in China

“…Although there are numerous studies about the impact of climate risk on corporate behavior (Shih et al, 2021;Yu et al, 2022a;Rao et al, 2022b;Huang et al, 2022;Lin and Sheng, 2022;Zhou et al, 2022;Ahmad et al, 2023;Lee et al, 2023;Ozkan et al, 2023), research on the impact of climate risk on corporate green innovation is very limited and controversial. On the other hand, climate risk will inevitably bring varying degrees of damage to corporations, thereby directly or indirectly affecting green innovation.…”