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Do environmental regulations affect firm's cash holdings? Evidence from a quasi-natural experiment

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  • Li, Weiping
  • Chen, Xiaoqi
  • Huang, Jiashun
  • Gong, Xu
  • Wu, Wei

Abstract

Stricker environmental regulation enable firms to reduce their pollution and alter their investment decision, which may reshape their cash holding decisions. To investigate the relationship between environmental regulation, this study carries out the quasi-natural experiment based on the implementation of carbon dioxide emission trading system (CO2 ETS). Based on the Chinese listed firms from 2007 to 2020, we demonstrate that the CO2 ETS enable firms to hold more cash and the positive impact of CO2 ETS on cash holding is more pronounced for firms with stronger external monitoring and fewer investment opportunities, non-state-owned enterprises (non-SOEs), and firms located in less-marketization places. Our study enriches the economic consequence of environmental regulation and undercovers a new determinator for firm's cash holdings.

Suggested Citation

  • Li, Weiping & Chen, Xiaoqi & Huang, Jiashun & Gong, Xu & Wu, Wei, 2022. "Do environmental regulations affect firm's cash holdings? Evidence from a quasi-natural experiment," Energy Economics, Elsevier, vol. 112(C).
    • Handle: RePEc:eee:eneeco:v:112:y:2022:i:c:s0140988322003061
    DOI: 10.1016/j.eneco.2022.106151
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    Cited by:

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    2. Gao, Yihong & Gao, Jiayan, 2023. "Low-carbon transformation and corporate cash holdings," Finance Research Letters, Elsevier, vol. 54(C).
    3. Sakariyahu, Rilwan & Lawal, Rodiat & Kwansa, Nana Abena & Ahmed, Ammar & Adamolekun, Gbenga, 2023. "Emissions trading scheme participation and firms’ cash holdings," Finance Research Letters, Elsevier, vol. 58(PC).
    4. Sun, Chuanwang & Tie, Ying & Yu, Lili, 2024. "How to achieve both environmental protection and firm performance improvement: Based on China's carbon emissions trading (CET) policy," Energy Economics, Elsevier, vol. 130(C).
    5. Mo Du & Shanglei Chai & Shu Li & Zejing Sun, 2022. "How Environmental Regulation Affects Green Investment of Heavily Polluting Enterprises: Evidence from Steel and Chemical Industries in China," Sustainability, MDPI, vol. 14(19), pages 1-14, September.
    6. Jia, Zhijie, 2023. "The hidden benefit: Emission trading scheme and business performance of downstream enterprises," Energy Economics, Elsevier, vol. 117(C).

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