Is Green Revenue Vanity or Sanity? Evidence from Corporate Cash Holdings

Abstract

We manually construct a novel corporate green revenue dataset in China to investigate the effect of green revenue on corporate cash holdings. We first show that corporate green revenue measures capture new information beyond traditional corporate environmental scores published by major rating agencies and carbon emissions amounts of a firm. We find that firms with a higher percentage of green revenues tend to hold less cash. Economically, a one-standard-deviation increase in green revenue scaled by total revenue leads to a 3.56% decline in cash holdings scaled by total assets. This negative relationship is more pronounced in firms with high precautionary motive. Additionally, we find that the corporate green revenue ratio is associated with higher firm valuation, more long-term debts, and lower default risk. Our findings shed light on the sane effects of green revenue on corporate behaviour.

Keywords: cash holdings, Green revenues, Corporate environmental performance, Precautionary motive, Green investmets