Cash Holding Behavior of the GHG Emitting Firms

54 Pages Posted: 25 Mar 2021 Last revised: 26 Mar 2021

See all articles by Abu S. Amin

Abu S. Amin

Central Michigan University

Ashrafee T Hossain

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Abdullah Al Masum

The University of Texas - Rio Grande Valley

Date Written: March 15, 2021

Abstract

Recent global initiatives to reduce carbon emissions have increasingly exposed the carbon-emitting firms to regulatory and technological shocks. Given these shocks, we examine whether carbon emissions affect corporate cash holdings and find that carbon-emitting firms, on average, carry less cash. This finding is robust to alternate measures of our main variables, different model specifications, and various methods to address endogeneity, including a difference-in-differences approach. In the cross-section, we find that the documented negative relationship between carbon emissions and cash holdings magnifies with weaker internal governance, CEO overconfidence, and higher internal social capital. Further analyses reveal that carbon-emitting firms prefer spending more on capital investment but less on dividends and R&D activities. Finally, we document that carbon-emitting firms with excess cash holding have a lower firm valuation and a higher cost of capital, indicating that the capital market rewards them for holding less cash. Overall, consistent with agency theory, our results indicate that managerial preference for suboptimal investment or avoidance of external disciplining might attribute lower cash holding for carbon-emitting firms.

Keywords: Cash holdings; Carbon emission; Pollution; GHG

JEL Classification: G10; G18; G32; G40; Q50; Q51; Q54

Suggested Citation

Amin, Abu S. and Hossain, Ashrafee T and Masum, Abdullah Al, Cash Holding Behavior of the GHG Emitting Firms (March 15, 2021). Available at SSRN: https://ssrn.com/abstract=3790877 or http://dx.doi.org/10.2139/ssrn.3790877

Abu S. Amin

Central Michigan University ( email )

329 Sloan Hall
Mt Pleasant, MI Michigan 48858
United States
9897747621 (Phone)
9897746456 (Fax)

Ashrafee T Hossain (Contact Author)

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada

Abdullah Al Masum

The University of Texas - Rio Grande Valley ( email )

TX
United States

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