Strict Financial Regulation and Corporate Cash Holdings

PENG Yuliu; DU Xiaoling; CHEN Yongliang

Volume 40 Issue 2

Mar. 2025

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PENG Yuliu, DU Xiaoling, CHEN Yongliang. Strict Financial Regulation and Corporate Cash Holdings[J]. Journal of Guangdong University of Finance & Economics, 2025, 40(2): 22-38.

Citation:

PENG Yuliu, DU Xiaoling, CHEN Yongliang. Strict Financial Regulation and Corporate Cash Holdings[J]. Journal of Guangdong University of Finance & Economics, 2025, 40(2): 22-38.

PENG Yuliu, DU Xiaoling, CHEN Yongliang. Strict Financial Regulation and Corporate Cash Holdings[J]. Journal of Guangdong University of Finance & Economics, 2025, 40(2): 22-38.

Citation:

PENG Yuliu, DU Xiaoling, CHEN Yongliang. Strict Financial Regulation and Corporate Cash Holdings[J]. Journal of Guangdong University of Finance & Economics, 2025, 40(2): 22-38.

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Strict Financial Regulation and Corporate Cash Holdings

Jiangxi University of Finance and Economics, Nanchang 330013, China

Received Date: 2025-01-14
Available Online: 2025-03-31
Publish Date: 2025-03-28

Abstract

Abstract

In the context of comprehensively strengthening financial regulation, the economic effects of strict financial regulation deserve attention. Leveraging administrative penalty data from China's banking sector and financial data of A-share listed companies from 2006 to 2022, this study empirically examines the impacts of banking regulatory penalties on corporate cash holdings. The findings reveal that banking regulatory penalties significantly diminish corporate cash reserves, and this conclusion remains valid after addressing endogeneity issues and a series of robustness tests. Mechanism analyses indicate that banking regulatory penalties mainly reduce corporate cash holdings by strengthening the supervisory role of banks as corporate creditors (referred to as the supervision effect) and increasing the marginal cost of cash holdings (referred to as the cost effect). The detrimental effects of regulatory penalties on cash holdings vary across enterprises based on their property rights nature, asset characteristics, long-term financial equity holdings, and regional financial development. Further analysis indicates that banking regulatory penalties prompt companies to reduce cash and cash equivalents while increasing trading financial assets, consequently diminishing the financial income derived from cash holdings. This research contributes to valuable insights for enhancing financial regulation, reinforcing compliant and prudent operation of banks, and optimizing the decision-making on corporate cash holdings.
- strict financial regulation,
- cash holdings,
- banking regulatory penalty,
- supervisory effect,
- cost effect

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References(39)

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