The impact of air pollution on cash holdings of firms in Vietnam

Abstract

Cash holding is an important decision that affects many other choices in a firm. Previous studies have revealed a range of factors affecting cash holdings, but little is known about a macro variable: air pollution, which is quite a pressing issue recently and globally. This study examines the association between air pollution and cash holdings using a sample of listed firms in Vietnam, a developing country that has a worrisome level of air pollution. The research sample covers non-financial firms listed on the Vietnam Stock Exchange from 2016 to 2021, retrieved from Thomson Refinitiv. Furthermore, the authors also gather information on air pollution using the particulate matter measurement index (PM2.5) over the years 2016 to 2021 from the contribution of General Consulate of U.S. in Vietnam. The current research employs conventional estimation strategies including OLS, Fixed effects model, and Random effects model. In contrast to previous studies suggesting a positive linkage, we find that air pollution is not significantly related to cash holdings of firms in Vietnam. This could be due to the own situations in Vietnam and that air pollution could reduce (risky) investments. We further find that leverage tends to make air pollution have a more negative effect on cash holdings for firms in Vietnam. The findings bring important implications, and are robust to several techniques to ensure the robustness of findings