Anti-corruption, government intervention, and corporate cash holdings: Evidence from China

Abstract

We use China as an example to examine how anti-corruption and government intervention shape corporate cash holding decisions. The findings show that firms in provinces with less government intervention (weak anti-corruption intensity) hold smaller (larger) cash reserves than those in provinces with more government intervention (strong anti-corruption intensity). Furthermore, we find that the positive relationship between government intervention and corporate cash holdings is alleviated as the anti-corruption intensity increases, and this alleviation effect is more prominent for state-owned enterprises (SOEs), firms in high intervention areas and firms without political connections. These findings support the argument that corruption-free and low intervention governments can benefit firms in making more profitable corporate decisions.