The Effect of Drinking Culture on Corporate Cash Holdings

We investigate the effect of drinking culture on corporate cash holdings using a sample of Chinese firms from 2011 to 2021. The findings suggest that the popularity of drinking culture increases corporate cash holdings. The findings are robust to alternative metrics of cash holdings and drinking culture, the firm-fixed effect regression, the propensity score matching, the difference-in-differences model, and the instrument variable regression. Additionally, we find evidence to be consistent with the agency's motive for holding cash among Chinese firms. The prevalent drinking culture reduces the value of cash holdings, encourages executive perk consumption, and promotes corporate overinvestment. We also report that drinking culture adversely impacts corporate performance and a rise in stock price crash risk. Our results carry implications for the impact of drinking culture on corporate financial decisions.