Regional carbon efficiency and corporate cash holdings: evidence from China

Improving regional carbon efficiency is significant for achieving carbon emission peak and carbon neutrality. Local governments' carbon reduction regulations to improve regional carbon efficiency greatly influence the macro environment of enterprise production and operation. However, only some studies have focused on the relationship between regional carbon efficiency and corporate production and operation. Based on the data of Chinese A-share listed companies from 2008 to 2019, this study aims to identify the impact and influencing mechanism of regional carbon efficiency on corporate cash holdings. The main results are as follows. (1) With the improvement of regional carbon efficiency, the cash holdings level of enterprises can be reduced. The reason is that facing the dual tasks of reducing carbon emissions and promoting economic growth, the uncertainty of China's local government's carbon reduction policy will be more obvious. This is bound to have uncertain impacts on enterprises in many aspects, resulting in local enterprises facing carbon risk. Regional carbon efficiency will reduce carbon risk and weaken the preventive motivation of enterprises holding cash under the condition of stabilizing enterprise cash flow, alleviating financing constraints and improving the availability of external funds. (2) Regional carbon efficiency reduces the cash holdings of enterprises by improving corporate debt financing capability and promoting long-term investment. That is because improvements in regional carbon efficiency can reduce the carbon risks faced by enterprises. In terms of cash source, it can alleviate the financing constraints of enterprises, while in terms of cash destination, it may promote enterprises to make long-term investments and reduce cash holdings. This study enriches the literature on the factors influencing corporate cash holdings, documents the initiative of Chinese enterprises to participate in peak carbon programs and carbon neutral actions, and may enhance support for carbon emissions reduction in developing countries.

Xiaohui Chen, Wen Chen, Tao Hu, Bo Yang, Jianguang Zeng