IDEAS home Printed from https://ideas.repec.org/a/wly/ijfiec/v28y2023i4p4420-4457.html
   My bibliography  Save this article

The religion effect on corporate cash holding in China: Buddhism and Taoism

Author

Listed:
  • Lingyun Xiong
  • Lijuan Xiao
  • Min Bai
  • Yafeng Qin
  • Lijuan Yang

Abstract

Buddhism and Taoism have been deeply rooted in China for generations and both of them have a profound impact on the local culture and social norms. By employing 23,999 firm‐year observations between 2008 and 2018, we examine how local religious norms affect corporate cash policies. We provide strong evidence that religiosity significantly reduces the level of corporate cash holdings, by mitigating financial constraints and earnings management of the listed companies. Managers from religious areas make more effective investments and distribute more dividends. Furthermore, our findings document that religion has a more pronounced influence on cash holdings amongst the firms with the smaller size, lower leverage, higher marketization, effective internal control and facing fierce market competition. Overall, Buddhism and Taoism, constituting the main religious norms in China, significantly optimize the firms' cash holdings and firm value.

Suggested Citation

  • Lingyun Xiong & Lijuan Xiao & Min Bai & Yafeng Qin & Lijuan Yang, 2023. "The religion effect on corporate cash holding in China: Buddhism and Taoism," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4420-4457, October.
    • Handle: RePEc:wly:ijfiec:v:28:y:2023:i:4:p:4420-4457
    DOI: 10.1002/ijfe.2658
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/ijfe.2658
    Download Restriction: no
    File URL: https://libkey.io/10.1002/ijfe.2658?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Sherif El-Halaby & Hosam Abdelrasheed & Khaled Hussainey, 2021. "Corporate Cash Holdings and National Culture: Evidence from the Middle East and North Africa Region," JRFM, MDPI, vol. 14(10), pages 1-22, October.
    2. Dittmar, Amy & Mahrt-Smith, Jan & Servaes, Henri, 2003. "International Corporate Governance and Corporate Cash Holdings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 111-133, March.
    3. Christopher A. Parsons & Johan Sulaeman & Sheridan Titman, 2018. "The Geography of Financial Misconduct," Journal of Finance, American Finance Association, vol. 73(5), pages 2087-2137, October.
    4. 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.
    5. Her-Jiun Sheu & Shiou-Ying Lee, 2012. "Excess cash holdings and investment: the moderating roles of financial constraints and managerial entrenchment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 52, pages 287-310, October.
    6. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
    7. Ozkan, Aydin & Ozkan, Neslihan, 2004. "Corporate cash holdings: An empirical investigation of UK companies," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2103-2134, September.
    8. Stulz, Rene M. & Williamson, Rohan, 2003. "Culture, openness, and finance," Journal of Financial Economics, Elsevier, vol. 70(3), pages 313-349, December.
    9. Joseph Henrich & Michal Bauer & Alessandra Cassar & Julie Chytilová & Benjamin Grant Purzycki, 2019. "War increases religiosity," Nature Human Behaviour, Nature, vol. 3(2), pages 129-135, February.
    10. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
    11. Liu, Yixin & Mauer, David C., 2011. "Corporate cash holdings and CEO compensation incentives," Journal of Financial Economics, Elsevier, vol. 102(1), pages 183-198, October.
    12. Hilary, Gilles & Hui, Kai Wai, 2009. "Does religion matter in corporate decision making in America?," Journal of Financial Economics, Elsevier, vol. 93(3), pages 455-473, September.
    13. Stewart C. Myers & Raghuram G. Rajan, 1998. "The Paradox of Liquidity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 733-771.
    14. 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.
    15. Huajing Hu & Yili Lian & Wencang Zhou, 2019. "Do Local Protestant Values Affect Corporate Cash Holdings?," Journal of Business Ethics, Springer, vol. 154(1), pages 147-166, January.
    16. Lorenzo Caprio & Mara Faccio & John J. McConnell, 2013. "Sheltering Corporate Assets from Political Extraction," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(2), pages 332-354, April.
    17. 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.
    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. Dittmar, Amy & Mahrt-Smith, Jan, 2007. "Corporate governance and the value of cash holdings," Journal of Financial Economics, Elsevier, vol. 83(3), pages 599-634, March.
    20. Chen, Yi-Wen & Chan, Konan & Chang, Yuanchen, 2019. "Peer effects on corporate cash holdings," International Review of Economics & Finance, Elsevier, vol. 61(C), pages 213-227.
    21. Chuluunbat Tsendsuren & Prayag L. Yadav & Seung Hun Han & Seongjae Mun, 2021. "The effect of corporate environmental responsibility and religiosity on corporate cash holding decisions and profitability: Evidence from the United States' policies for sustainable development," Sustainable Development, John Wiley & Sons, Ltd., vol. 29(5), pages 987-1000, September.
    22. Nerissa C. Brown & Jared D. Smith & Roger M. White & Chad J. Zutter, 2021. "Political Corruption and Firm Value in the U.S.: Do Rents and Monitoring Matter?," Journal of Business Ethics, Springer, vol. 168(2), pages 335-351, January.
    23. Ho, Ly & Bai, Min & Lu, Yue & Qin, Yafeng, 2021. "The effect of corporate sustainability performance on leverage adjustments," The British Accounting Review, Elsevier, vol. 53(5).
    24. Aggarwal, Reena & Erel, Isil & Ferreira, Miguel & Matos, Pedro, 2011. "Does governance travel around the world? Evidence from institutional investors," Journal of Financial Economics, Elsevier, vol. 100(1), pages 154-181, April.
    25. Fan, Meiting & Shao, Shuai & Yang, Lili, 2015. "Combining global Malmquist–Luenberger index and generalized method of moments to investigate industrial total factor CO2 emission performance: A case of Shanghai (China)," Energy Policy, Elsevier, vol. 79(C), pages 189-201.
    26. McCleary, Rachel & Barro, Robert, 2003. "Religion and Economic Growth across Countries," Scholarly Articles 3708464, Harvard University Department of Economics.
    27. Jensen, Michael C & Meckling, William H, 1979. "Rights and Production Functions: An Application to Labor-managed Firms and Codetermination," The Journal of Business, University of Chicago Press, vol. 52(4), pages 469-506, October.
    28. Choonsik Lee & Heungju Park, 2016. "Financial constraints, board governance standards, and corporate cash holdings," Review of Financial Economics, John Wiley & Sons, vol. 28(1), pages 21-34, January.
    29. Chen, Yenn-Ru & Chuang, Wei-Ting, 2009. "Alignment or entrenchment? Corporate governance and cash holdings in growing firms," Journal of Business Research, Elsevier, vol. 62(11), pages 1200-1206, November.
    30. Xingqiang Du & Wei Jian & Shaojuan Lai & Yingjie Du & Hongmei Pei, 2015. "Does Religion Mitigate Earnings Management? Evidence from China," Journal of Business Ethics, Springer, vol. 131(3), pages 699-749, October.
    31. He, Wen & Hu, Maggie (Rong), 2016. "Religion and bank loan terms," Journal of Banking & Finance, Elsevier, vol. 64(C), pages 205-215.
    32. L. Lee Colquitt & Robert E. Hoyt & Ryan B. Lee, 1999. "Integrated Risk Management and the Role of the Risk Manager," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 2(3), pages 43-61, September.
    33. Heitor Almeida & Murillo Campello & Michael S. Weisbach, 2004. "The Cash Flow Sensitivity of Cash," Journal of Finance, American Finance Association, vol. 59(4), pages 1777-1804, August.
    34. Smith, Jared D., 2016. "US political corruption and firm financial policies," Journal of Financial Economics, Elsevier, vol. 121(2), pages 350-367.
    35. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    36. Scott D. Dyreng & William J. Mayew & Christopher D. Williams, 2012. "Religious Social Norms and Corporate Financial Reporting," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 39(7-8), pages 845-875, September.
    37. D. Kayes, 2006. "Organizational Corruption as Theodicy," Journal of Business Ethics, Springer, vol. 67(1), pages 51-62, August.
    38. Xingqiang Du & Wei Jian & Quan Zeng & Yingjie Du, 2014. "Corporate Environmental Responsibility in Polluting Industries: Does Religion Matter?," Journal of Business Ethics, Springer, vol. 124(3), pages 485-507, October.
    39. Yaoqin Li & Xichan Chen & Wanli Li & Xixiong Xu, 2021. "How does Buddhism affect corporate cash holdings?," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 18(9), pages 2086-2106, August.
    40. Lee Pinkowitz & René Stulz & Rohan Williamson, 2006. "Does the Contribution of Corporate Cash Holdings and Dividends to Firm Value Depend on Governance? A Cross‐country Analysis," Journal of Finance, American Finance Association, vol. 61(6), pages 2725-2751, December.
    41. Qiao, Penghua & Long, Yang & Fung, Hung-Gay & Kao, Erin Hui-Chuan, 2022. "Narcissistic leaders and corporate cash Holdings: Evidence in China," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    42. repec:eme:mfppss:mf-02-2021-0085 is not listed on IDEAS
    43. Sadok El Ghoul & Omrane Guedhami & Yang Ni & Jeffrey Pittman & Samir Saadi, 2012. "Does Religion Matter to Equity Pricing?," Journal of Business Ethics, Springer, vol. 111(4), pages 491-518, December.
    44. Xingqiang Du, 2014. "Does Religion Mitigate Tunneling? Evidence from Chinese Buddhism," Journal of Business Ethics, Springer, vol. 125(2), pages 299-327, December.
    45. Miguel A. Ferreira & Antonio S. Vilela, 2004. "Why Do Firms Hold Cash? Evidence from EMU Countries," European Financial Management, European Financial Management Association, vol. 10(2), pages 295-319, June.
    46. Callen, Jeffrey L. & Fang, Xiaohua, 2015. "Religion and Stock Price Crash Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(1-2), pages 169-195, April.
    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. Chuluunbat Tsendsuren & Prayag L. Yadav & Seung Hun Han & Seongjae Mun, 2021. "The effect of corporate environmental responsibility and religiosity on corporate cash holding decisions and profitability: Evidence from the United States' policies for sustainable development," Sustainable Development, John Wiley & Sons, Ltd., vol. 29(5), pages 987-1000, September.
    2. 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.
    3. Ahsan Habib & Mabel D' Costa & Ahmed Khamis Al‐Hadi, 2023. "Consequences of local social norms: A review of the literature in accounting, finance, and corporate governance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 3-45, March.
    4. Duan, Tingting & Yang, Xue & Zhang, Zhe, 2023. "The improvement of legal system, entrepreneur immigration, and corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 89(C).
    5. Yao, Youfu & Hong, Yun, 2023. "Can comment letters impact excess cash holdings? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 900-922.
    6. Huang, Winifred & Mazouz, Khelifa, 2018. "Excess cash, trading continuity, and liquidity risk," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 275-291.
    7. Hou, Canran & Liu, Huan, 2020. "Foreign residency rights and corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 64(C).
    8. Pascal Nguyen & Nahid Rahman, 2020. "Institutional ownership, cross‐shareholdings and corporate cash reserves in Japan," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 1175-1207, April.
    9. Huajing Hu & Yili Lian & Wencang Zhou, 2019. "Do Local Protestant Values Affect Corporate Cash Holdings?," Journal of Business Ethics, Springer, vol. 154(1), pages 147-166, January.
    10. Jan Felix Weidemann, 2018. "A state-of-the-art review of corporate cash holding research," Journal of Business Economics, Springer, vol. 88(6), pages 765-797, August.
    11. Tiziana La Rocca & Maurizio La Rocca & Francesco Fasano & Alfio Cariola, 2023. "Does a country's environmental policy affect the value of small and medium sized enterprises liquidity in the energy sector?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(1), pages 277-290, January.
    12. Chen, Naiwei & Yu, Min-Teh, 2021. "National Governance and Corporate Liquidity in Organization of Islamic Cooperation Countries: Evidence based on a Sharia-compliant Liquidity Measure," Emerging Markets Review, Elsevier, vol. 47(C).
    13. Megginson, William L. & Ullah, Barkat & Wei, Zuobao, 2014. "State ownership, soft-budget constraints, and cash holdings: Evidence from China’s privatized firms," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 276-291.
    14. Mostafa Monzur Hasan & Ahsan Habib & Ruoyun Zhao, 2022. "Corporate reputation risk and cash holdings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 667-707, March.
    15. Habib, Ahsan & Monzur Hasan, Mostafa & Al-Hadi, Ahmed, 2017. "Financial statement comparability and corporate cash holdings," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(3), pages 304-321.
    16. Jianqiao Huang & Yunsen Chen & Xin Dai & Xiaoran Ni, 2022. "Stock market liberalisation and corporate cash holdings: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1925-1955, April.
    17. Gupta, C.P. & Bedi, Prateek, 2020. "Corporate cash holdings and promoter ownership," Emerging Markets Review, Elsevier, vol. 44(C).
    18. Xiang Zhang & Zongyi Zhang & Han Zhou, 2023. "Grabbing hand or financial constraint mitigation effect? A reexamination of the relationship between institutional development and cash holdings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 631-655, March.
    19. Maurizio Rocca & Raffaele Staglianò & Tiziana Rocca & Alfio Cariola & Ekaterina Skatova, 2019. "Cash holdings and SME performance in Europe: the role of firm-specific and macroeconomic moderators," Small Business Economics, Springer, vol. 53(4), pages 1051-1078, December.
    20. Park, SeHyun, 2022. "Liquid asset sheltering, or cost of capital? The effect of political corruption on corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 82(C).

    More about this item

    Statistics

    Access and download statistics

    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:wly:ijfiec:v:28:y:2023:i:4:p:4420-4457. 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: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/1076-9307/ .

    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.