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At what cost? Environmental regulation and corporate cash holdings

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  • Alexander, Anna
  • De Vito, Antonio
  • Menicacci, Luca

Abstract

This paper examines the relation between environmental protection laws and corporate cash holdings. Using a panel of public firms across 31 countries, we show that laws protecting the environment reduce cash holdings, consistent with environmental protection regulations weakening firms’ liquidity positions through heightened operating costs and lower profit margins. In cross-sectional analyses, we document that high-market power firms and firms in countries with lenient anti-tax avoidance rules suffer from cash-holding reductions to a lesser extent. Overall, these findings suggest that environmental protection laws map negatively into firms’ cash balances and shed new light on the economic consequences of environmental laws.

Suggested Citation

  • Alexander, Anna & De Vito, Antonio & Menicacci, Luca, 2024. "At what cost? Environmental regulation and corporate cash holdings," Finance Research Letters, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:finlet:v:61:y:2024:i:c:s1544612323013326
    DOI: 10.1016/j.frl.2023.104960
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    More about this item

    Keywords

    Cash holdings; Environmental regulation; Environmental taxes; Cash management; Tax avoidance; Market power;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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