Regional Investment Preferences and Corporate Cash Holdings: Evidence from China

Abstract

Based on the sample of Chinese A-share listed companies from 2006 to 2020, this paper studies the impact of regional investment preference on corporate cash holdings. We find that the stronger the investment preference in the region where the company is located, the higher the level of the company’s cash holdings. After a series of robustness tests, such as the instrumental variable method and propensity score matching method, the main regression results of this paper remain unchanged. The mechanism test shows that the regional investment preference can increase the preventive cash holding and strategic cash holding motivation of enterprises so as to improve the cash holding level of companies. Further research shows that strict internal control and external supervision can weaken the impact of regional investment preference on corporate cash holdings. This paper not only enriches the research on the factors affecting enterprise cash holding but also deepens the theoretical cognition of the impact of the regional environment on corporate governance.