Green Credit Policy and Corporate Cash Holdings: Evidence from China

Accounting and Finance, forthcoming

50 Pages Posted: 7 Mar 2022 Last revised: 2 Nov 2022

See all articles by Weiping Li

Weiping Li

Sun Yat-sen University

Xiaoqi Chen

Xiamen University

Tao Yuan

Nanjing University - School of Business

Date Written: January 10, 2022

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 increase 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.

Keywords: cash holding; China; financial constraint; green credit policy

JEL Classification: G31; G32; G38

Suggested Citation

Li, Weiping and Chen, Xiaoqi and Yuan, Tao, Green Credit Policy and Corporate Cash Holdings: Evidence from China (January 10, 2022). Accounting and Finance, forthcoming, Available at SSRN: https://ssrn.com/abstract=4051219 or http://dx.doi.org/10.2139/ssrn.4051219

Weiping Li

Sun Yat-sen University ( email )

Guangzhou
China

Xiaoqi Chen

Xiamen University ( email )

Xiamen, Fujian 361005
China

Tao Yuan (Contact Author)

Nanjing University - School of Business ( email )

22 Hankou Road
Nanjing, Jiangsu 210093 210093
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
98
Abstract Views
321
Rank
407,795
PlumX Metrics