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Does sovereign ESG shape corporate cash management in emerging markets?

Author

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  • Aljughaiman, Abdullah A.
  • Barrak, Thamir Al
  • Chebbi, Kaouther

Abstract

Environmental, social, and governance aspects are becoming increasingly crucial factors for investors decisions. This paper examines the effect of sovereign environmental, social, and governance (SESG) practices on the cash-holding decisions of firms in the Gulf Cooperation Council (GCC) region. Utilizing firm-level data from 2010 to 2022, we find that improved SESG standards lead firms to reduce their cash holdings. The results are robust to sample selection, additional control variables, different estimation methods, and endogeneity concerns. Furthermore, we show a negative relationship between each SESG pillar (environmental, social, and governance) and corporate cash holdings. These findings offer valuable empirical implications for various stakeholders. Regulators can consider the potential impact of SESG standards on corporate financial health, potentially informing future regulations. Shareholders can leverage these findings to assess the potential financial benefits of strong SESG adherence by the companies in which they invest.

Suggested Citation

  • Aljughaiman, Abdullah A. & Barrak, Thamir Al & Chebbi, Kaouther, 2024. "Does sovereign ESG shape corporate cash management in emerging markets?," Finance Research Letters, Elsevier, vol. 67(PB).
    • Handle: RePEc:eee:finlet:v:67:y:2024:i:pb:s1544612324009127
    DOI: 10.1016/j.frl.2024.105882
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    More about this item

    Keywords

    Sovereign ESG; Cash holdings; Cash management; Emerging markets; Gulf cooperation council;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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