Advertising and corporate cash holdings

Abstract

This study investigates the effect of advertising on corporate cash holdings. Using a comprehensive sample of Chinese listed firms from the 2011–2022 period, we find that advertising increases corporate cash holdings. This finding remains valid across various robustness measures and is attenuated for state-owned enterprises. Mechanism tests show that advertising affects cash holdings by improving analyst coverage. Our study is the first to examine the role of advertising in corporate cash holdings and substantiates the perspective that firms with superior corporate governance maintain greater cash reserves.