Does environmental concern drive financial assets? Evidence from China

Public environmental concern (PEC) is an informal environmental governance mechanism, which has significantly influenced corporate decision-making. In this paper, we investigate whether (and how) PEC affects corporate financial asset holdings. Using data from listed industrial companies, between 2012 and 2019 in China, our findings reveal that companies facing higher PEC tend to hold more financial assets. The mechanism analysis suggests that managers’ return-seeking motive mainly drives the effect. Moreover, the effect is more pronounced for companies without ‘green’ background executives, those lacking efficient environmental management systems, and those in heavily polluting industries. This paper provides new insights into corporate financialization determinants and sheds light on how informal institutions shape firms’ investment decisions.