Green development, climate risks, and cash flow: International evidence

Abstract

This study investigates how the interaction between climate risks and cash flow can influence corporate cash holdings across 87 countries. As a secondary goal, we examine how green development affects cash holdings. Our key findings illustrate that cash holdings are positively related to the interaction between climate risks and cash flow and negatively related to green development. Additionally, the effects of the interaction between climate risks and cash flow on corporate cash holdings are more apparent for firms with higher financial constraints, located in countries with higher levels of green development, and for Asian and European firms. Our results suggest that policymakers should consider corporate decisions regarding cash holdings when implementing climate-related strategies, as these policies and the current climate risk impacts can further encourage firms to increase corporate cash holdings as a precautionary measure against external shocks.