Green credit policy and corporate cash holdings: Evidence from China |
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| Authors: | Weiping Li Xiaoqi Chen Tao Yuan |
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| Institution: | 1. International School of Business & Finance, Advanced Institute of Finance, Institute of Enterprise, Sun Yat-Sen University, Zhuhai, China;2. Institute for Financial & Accounting Studies, Xiamen University, Xiamen, China;3. Department of Accounting, School of Business, Nanjing University, Nanjing, China |
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| Abstract: | In 2012, China implemented a green credit policy (GCP) that restricts bank credits to heavily polluting firms. Using a difference-in-differences research design, we find that polluting firms increased their cash reserves by 9.5% after the GCP's issuance relative to non-polluting firms. We also document that the GCP significantly reduces firms' access to bank finance but increases the value of cash. Cross-sectional analysis shows that the increase in cash holdings is more significant for firms with greater financial constraints, firms with more investment opportunities, and high-tech companies. Overall, our findings are consistent with a constraint explanation: when external financing is restricted, firms retain more cash to meet future investment needs. |
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| Keywords: | cash holding China financial constraint green credit policy |
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