IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v16y2024i18p7961-d1476525.html
   My bibliography  Save this article

How Do Macroeconomic Cycles and Government Policies Influence Cash Holdings? Evidence from Listed Firms in China

Author

Listed:
  • Fangnan Cui

    (School of Management, Jinan University, Guangzhou 510632, China)

  • Yue Tan

    (School of Management, Jinan University, Guangzhou 510632, China)

  • Bangwen Lu

    (Zhengzhou Institute of Multipurpose Utilization of Mineral Resources, CAGS, Zhengzhou 450006, China
    China National Engineering Research Center for Utilization of Industrial Minerals, Zhengzhou 450006, China)

Abstract

Cash holdings are vital for a firm’s resilience and ability to capitalize on investment opportunities amid economic fluctuations. In this study, the complex relationship between macroeconomic cycles, government policies, and the cash holdings of Chinese listed firms is investigated. By analyzing data from Shanghai and Shenzhen A-share listed firms from 2004 to 2019, this research uncovers the individual and combined effects of economic cycles and monetary policies on corporate cash management. Key findings include the following: (1) A significant negative correlation between cash holdings and economic cycle volatility indicates that firms tend to increase cash holdings during periods of instability and reduce them during economic stability. (2) There is a strong negative relationship between restrictive monetary policy and cash holdings, suggesting that firms accumulate more cash to safeguard against tighter financial conditions. (3) The interplay between economic policies and business cycles reveals that during recessions, restrictive monetary policy increases cash holdings, while economic policy uncertainty reduces them. In contrast, during economic prosperity, monetary policy has a minimal impact on cash holdings. These insights emphasize the need for firms to integrate both economic cycles and policy environments into their cash management strategies. The findings offer valuable guidance for policymakers and business leaders aiming to enhance financial stability and optimize cash holdings across different economic conditions.

Suggested Citation

  • Fangnan Cui & Yue Tan & Bangwen Lu, 2024. "How Do Macroeconomic Cycles and Government Policies Influence Cash Holdings? Evidence from Listed Firms in China," Sustainability, MDPI, vol. 16(18), pages 1-15, September.
    • Handle: RePEc:gam:jsusta:v:16:y:2024:i:18:p:7961-:d:1476525
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/16/18/7961/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/16/18/7961/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bijoy Chandra Das & Fakhrul Hasan & Soma Rani Sutradhar, 2024. "The impact of economic policy uncertainty and inflation risk on corporate cash holdings," Review of Quantitative Finance and Accounting, Springer, vol. 62(3), pages 865-887, April.
    2. RenÈ Garcia, 2002. "Are the Effects of Monetary Policy Asymmetric?," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 102-119, January.
    3. Yong Ma & Jinglan Zhang, 2016. "Financial Cycle, Business Cycle and Monetary Policy: Evidence from Four Major Economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(4), pages 502-527, October.
    4. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 869-902.
    5. Murillo Campello & Erasmo Giambona & John R. Graham & Campbell R. Harvey, 2011. "Liquidity Management and Corporate Investment During a Financial Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1944-1979.
    6. Dick van Dijk & Timo Terasvirta & Philip Hans Franses, 2002. "Smooth Transition Autoregressive Models — A Survey Of Recent Developments," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 1-47.
    7. Xunan Feng & Y. Ling Lo & Kam C. Chan, 2022. "Impact of economic policy uncertainty on cash holdings: firm-level evidence from an emerging market," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 29(2), pages 363-385, March.
    8. repec:diw:diwwpp:dp633 is not listed on IDEAS
    9. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March.
    10. Campello, Murillo, 2003. "Capital structure and product markets interactions: evidence from business cycles," Journal of Financial Economics, Elsevier, vol. 68(3), pages 353-378, June.
    11. Fehle, Frank & Tsyplakov, Sergey, 2005. "Dynamic risk management: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 78(1), pages 3-47, October.
    12. Jean-Bernard Chatelain & Andrea Generale & Ignacio Hernando & Ulf von Kalckreuth & Philip Vermeulen, 2001. "Firm Investment and Monetary Policy Transmission in the Euro Area," Working Papers 0119, Banco de España.
    13. Thomas W. Bates & Kathleen M. Kahle & René M. Stulz, 2009. "Why Do U.S. Firms Hold So Much More Cash than They Used To?," Journal of Finance, American Finance Association, vol. 64(5), pages 1985-2021, October.
    14. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    15. Teresa A. John, 1993. "Accounting Measures of Corporate Liquidity, Leverage, and Costs of Financial Distress," Financial Management, Financial Management Association, vol. 22(3), Fall.
    16. Baum, Christopher F. & Caglayan, Mustafa & Stephan, Andreas & Talavera, Oleksandr, 2008. "Uncertainty determinants of corporate liquidity," Economic Modelling, Elsevier, vol. 25(5), pages 833-849, September.
    17. Ruishi Jiang & Jia Ruan, 2023. "Does Direct Monetary Policy Affect the Supply of Bank Credit to Small and Medium-Sized Enterprises? An Analysis Based on Chinese Data," Sustainability, MDPI, vol. 15(15), pages 1-19, July.
    18. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    19. Yang Lyu & Zheng Ji & Xiaoqi Zhang & Zhe Zhan, 2023. "Can Fintech Alleviate the Financing Constraints of Enterprises?—Evidence from the Chinese Securities Market," Sustainability, MDPI, vol. 15(5), pages 1-21, February.
    20. Chang-Jin Kim & Charles R. Nelson, 1998. "Business Cycle Turning Points, A New Coincident Index, And Tests Of Duration Dependence Based On A Dynamic Factor Model With Regime Switching," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 188-201, May.
    21. Richard Arden & Steve Cook & Sean Holly & Paul Turner, 2000. "The Asymmetric Effects of Monetary Policy: Some Results from a Macroeconometric Model," Manchester School, University of Manchester, vol. 68(4), pages 419-441, June.
    22. Si, Deng-Kui & Zhao, Bing & Li, Xiao-Lin & Ding, Hui, 2021. "Policy uncertainty and sectoral stock market volatility in China," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 557-573.
    23. Yang, Xingquan & Han, Liang & Li, Wanli & Yin, Xingqiang & Tian, Lin, 2017. "Monetary policy, cash holding and corporate investment: Evidence from China," China Economic Review, Elsevier, vol. 46(C), pages 110-122.
    24. David J. Denis & Valeriy Sibilkov, 2010. "Financial Constraints, Investment, and the Value of Cash Holdings," The Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 247-269, January.
    25. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    26. Amess, Kevin & Banerji, Sanjay & Lampousis, Athanasios, 2015. "Corporate cash holdings: Causes and consequences," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 421-433.
    27. Chen, Deqiu & Li, Sifei & Xiao, Jason Zezhong & Zou, Hong, 2014. "The effect of government quality on corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 384-400.
    28. Wang, Xiaoyu & Sun, Yanlin & Peng, Bin, 2023. "Industrial linkage and clustered regional business cycles in China," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 59-72.
    29. Kim, Chang-Soo & Mauer, David C. & Sherman, Ann E., 1998. "The Determinants of Corporate Liquidity: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(3), pages 335-359, September.
    30. repec:bla:manchs:v:68:y:2000:i:4:p:419-41 is not listed on IDEAS
    31. Guney, Yilmaz & Ozkan, Aydin & Ozkan, Neslihan, 2007. "International evidence on the non-linear impact of leverage on corporate cash holdings," Journal of Multinational Financial Management, Elsevier, vol. 17(1), pages 45-60, February.
    32. Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hou, Canran & Liu, Huan, 2020. "Foreign residency rights and corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 64(C).
    2. Abdul Rashid & Maryam Ashfaq, 2017. "Financial Constraints And Corporate Cash Holdings: An Empirical Analysis Using Firm Level Data," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 1-26, June.
    3. Ahrends, Meike & Drobetz, Wolfgang & Puhan, Tatjana Xenia, 2018. "Cyclicality of growth opportunities and the value of cash holdings," Journal of Financial Stability, Elsevier, vol. 37(C), pages 74-96.
    4. El Ghoul, Sadok & Guedhami, Omrane & Mansi, Sattar & Wang, He (Helen), 2023. "Economic policy uncertainty, institutional environments, and corporate cash holdings," Research in International Business and Finance, Elsevier, vol. 65(C).
    5. Heitor Almeida & Murillo Campello & Igor Cunha & Michael S. Weisbach, 2014. "Corporate Liquidity Management: A Conceptual Framework and Survey," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 135-162, December.
    6. Quoc Trung Tran, 2020. "Corporate cash holdings and financial crisis: new evidence from an emerging market," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(2), pages 271-285, June.
    7. Amess, Kevin & Banerji, Sanjay & Lampousis, Athanasios, 2015. "Corporate cash holdings: Causes and consequences," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 421-433.
    8. Şirin Özlem & Omer Faruk Tan, 2022. "Predicting cash holdings using supervised machine learning algorithms," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-19, December.
    9. Efstathios Magerakis & Ahsan Habib, 2022. "Environmental uncertainty and corporate cash holdings: The moderating role of CEO ability," International Review of Finance, International Review of Finance Ltd., vol. 22(3), pages 402-432, September.
    10. Bijoy Chandra Das & Fakhrul Hasan & Soma Rani Sutradhar, 2024. "The impact of economic policy uncertainty and inflation risk on corporate cash holdings," Review of Quantitative Finance and Accounting, Springer, vol. 62(3), pages 865-887, April.
    11. Liu, Guangqiang & Zhang, Lingyun & Xie, Ziqin, 2022. "Environmental taxes and corporate cash holdings: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).
    12. Ahmed, Mohamed Shaker & Kumar, Satish & Gupta, Prashant & Bamel, Nisha, 2024. "CEO media coverage and cash holdings," International Review of Financial Analysis, Elsevier, vol. 91(C).
    13. Christos Floros & Emilios Galariotis & Konstantinos Gkillas & Efstathios Magerakis & Constantin Zopounidis, 2024. "Time-varying firm cash holding and economic policy uncertainty nexus: a quantile regression approach," Annals of Operations Research, Springer, vol. 341(2), pages 859-895, October.
    14. Farinha, Jorge & Mateus, Cesario & Soares, Nuno, 2018. "Cash holdings and earnings quality: evidence from the Main and Alternative UK markets," International Review of Financial Analysis, Elsevier, vol. 56(C), pages 238-252.
    15. Bigelli, Marco & Sánchez-Vidal, Javier, 2012. "Cash holdings in private firms," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 26-35.
    16. Chang, Chong-Chuo & Yang, Han, 2022. "The role of cash holdings during financial crises," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    17. Chang, Chong-Chuo & Tang, Hui-Wen, 2021. "Corporate cash holdings and total factor productivity – A global analysis," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    18. Alomran, Abdulaziz Ahmed & Alsubaiei, Bader Jawid, 2022. "Oil price uncertainty and corporate cash holdings: Global evidence," International Review of Financial Analysis, Elsevier, vol. 81(C).
    19. Khalil Jebran & Shihua Chen & Muhammad Zubair Tauni & Hassan Ahmad, 2019. "Corporate Governance, Ultimate Owner, and Target Cash Holdings: Evidence From China," SAGE Open, , vol. 9(4), pages 21582440198, December.
    20. Xueyan Dong & Kam C. Chan & Yujia Cui & Jenny Xinjiao Guan, 2021. "Strategic deviance and cash holdings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 742-782, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:16:y:2024:i:18:p:7961-:d:1476525. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.