Green drives greenbacks: The impact of sustainable innovation on corporate cash holdings in BRICS nations

Abstract

This study delves into the impact of sustainable innovation on corporate liquidity, specifically examining its influence on cash holdings among companies listed in BRICS nations. The study also explores the impact of green innovation on cash holdings before and after COVID-spread. Utilizing the system GMM regression technique on data spanning 2010 to 2022, we scrutinize the relationship between green innovation and cash reserves. Our findings reveal a significant correlation, showcasing that companies actively engaged in sustainable practices maintain lower levels of cash. This suggests a tangible reduction in the necessity for large cash reserves among businesses prioritizing green innovation. Notably, this effect persists even in the post-COVID landscape, highlighting the resilience of sustainability efforts on financial strategies. The influence of green innovation on cash holdings remains robust with diverse firm-specific and macroeconomic variables. The implications underscore the dual benefits of sustainable innovation, contributing not only to environmental sustainability but also enhancing financial efficiency by minimizing excess cash holdings. This study accentuates the imperative of integrating sustainability considerations into financial decision-making, offering practical insights for firms seeking to align sustainability goals with effective financial management. It provides valuable insights for policymakers and investors interested in promoting and supporting green initiatives. This study contributes to the evolving discourse on sustainability and corporate finance by shedding light on a relatively unexplored aspect of the association between green innovation and financial strategies.