Does Carbon Risk Affect Corporate Cash Holdings?

Against the backdrop of increasingly severe climate change issues, reducing corporate carbon emissions and promoting green transformation has become an important research topic at present. This research examines the impact mechanism of carbon risk has on corporate cash holdings, using the sample of Chinese A-share listed companies in Shanghai and Shenzhen from 2011 to 2021. We find that a significant positive correlation between carbon risk and corporate cash holdings. The mechanism analysis shows that companies with higher carbon risk will hold more cash to cope with more challenging financing constraints and higher transaction costs, due to preventive and transactional motives. Additional analyses indicate that the positive effect of carbon risk has on cash holdings is more pronounced in high-carbon emitting industries; in carbon emission trading cities, regions with high levels of financial development, and areas with high public environmental attention, the increasing effect of carbon risk on corporate cash holdings will be suppressed. Overall, our findings enrich the literature on economic effects of carbon risk on the firm level, and provide reference for policy makers, industry development, and corporate green transformation in the context of carbon risk.