Environmental, social, and governance disclosure impact on cash holdings in OECD countries

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Abstract

In this research, we investigate how cash holdings are affected by the environmental, social, and governance (ESG) disclosure practices of corporations. This research provides valuable insights into the ongoing discussion all across the world on ESG disclosure, and mainly 5 countries from the Organisation for Economic Co-operation and Development (OECD), which are the United States of America, Canada, the United Kingdom, Japan, and Australia, over the period 2012–2021. We used Refinitiv Eikon database to measure the variables. The results show there is a significantly negative relation between ESG disclosure and cash holdings in the introduction, growth, and shake-out/decline stages. Lower cash holdings are associated with higher firm performance and a positive value of cash. In spite of using different econometric parameters, other measurements, extra control variables, propensity score matching, and an instrumental variable approach, our results remained unchanged (Arayssi et al., 2020). This paper has recommendations for policymakers, investors, and business organizations. Importantly, our study reveals how higher levels of ESG disclosure lead to better cash-holding practices (Buallay, 2022).

Keywords: ESG, Cash Holdings, OECD, Liquidity, Sustainability, Financial Constraint

Authors’ individual contribution: Conceptualization — A.A., N.A., and T.A.-A.; Methodology — A.A. and N.A.; Validation — N.A., R.A.A., and T.A.-A.; Formal Analysis — A.A. and T.A.-A.; Investigation — A.A.; Resources — N.A., R.A.A., and T.A.-A.; Data Curation — A.A., N.A., and T.A.-A.; Writing — Original Draft — A.A., N.A., and T.A.-A.; Writing — Review & Editing — N.A., R.A.A., and T.A.-A.; Supervision — A.A.; Project Administration — N.A., R.A.A., and T.A.-A.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G32, G34, G38, G30, M41, M48, M40, D81

Received: 09.10.2022
Accepted: 01.05.2023
Published online: 02.05.2023

How to cite this paper: AlHares, A., AlEmadi, N., Abu-Asi, T., & Al Abed, R. (2023). Environmental, social, and governance disclosure impact on cash holdings in OECD countries. Journal of Governance & Regulation, 12(2), 104–119. https://doi.org/10.22495/jgrv12i2art10