How does Buddhism affect corporate cash holdings?
International Journal of Emerging Markets
ISSN: 1746-8809
Article publication date: 17 August 2021
Issue publication date: 14 November 2023
Abstract
Purpose
This study explores whether and how Buddhism impacts corporate cash holdings. Buddhist culture affects investors' perception of how cash is deployed and then influences corporate cash holdings. This study first examines the impact of Buddhism on corporate cash holdings and then investigates whether formal governance mechanisms such as legal institutions and institutional ownership influence the relationship between Buddhism and corporate cash holdings.
Design/methodology/approach
The authors conduct empirical tests with data on Chinese listed companies between 2006 and 2019. Buddhism is measured with the natural logarithm of the number of Buddhist temples within a radius of a certain distance around a firm's headquarters. The authors adopt the OLS method to regress and take the 2SLS method, Heckman selection model and FEVD approach to address the endogeneity issue.
Findings
The results show a positive relationship between Buddhism and corporate cash holdings. This positive relation is more prominent for firms located in regions with weak legal institutions and for firms with low institutional ownership. Further analysis shows that Buddhism works through the channel of alleviating agency problems and finally improves the value of cash to investors.
Research limitations/implications
The authors’ findings have important implications. First, this study provides inspiration for incorporating the ethical values of traditional cultures, such as Buddhism, into the corporate governance system. Second, the findings imply that informal institutions can influence corporate financial decisions beyond the effect of formal institutions, suggesting that informal systems should be emphasized when dealing with business affairs in countries where legal institutions are relatively weak. Third, the results suggest the significance of encouraging research on religious culture to explore its active role in corporate governance.
Originality/value
This study illustrates the positive value of religious culture in advancing corporate governance by relating Buddhism to corporate cash holdings based on the explanation of investors' perception. It makes a marginal contribution to the literature that investigates the determinants of cash policies and explores the firm-level consequences of religious culture, adding to the research area of culture and corporate finance.
Keywords
Acknowledgements
Declarations of interest: none.
Funding: The authors would like to acknowledge the financial support from the China Postdoctoral Science Foundation [grant number 2020M683341], the Fundamental Research Funds for the Central Universities [grant numbers skbsh2020-22, SCU-BS-PY-202045, SXYPY202140], the Major Projects of National Social Science Foundation of China [grant number 20AGL016], National Natural Science Foundation of China [grant number 72002068].
Citation
Li, Y., Chen, X., Li, W. and Xu, X. (2023), "How does Buddhism affect corporate cash holdings?", International Journal of Emerging Markets, Vol. 18 No. 9, pp. 2086-2106. https://doi.org/10.1108/IJOEM-08-2020-0902
Publisher
:Emerald Publishing Limited
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