Resilient reserves: Climate adaptive pilot cities policy and firms’ cash holdings

• CAPC policy would lower the firms' cash holdings by 10.76 % and 11.29 %, respectively. • This effect is particularly prominent for non-state-owned enterprises (NSOEs) or firms located in cities with higher climate risk perception. • The reduction in cash holdings resulted from CAPC policy would be attributed to the relaxation of financing constraints, reduction of bankruptcy risk, alleviation of agency costs. • Our article sheds light on the role of CAPC policy in shaping firms' cash management in developing countries. Climate mitigation and adaptation are indispensable pillars of global climate governance. Although there are growing research on studying the mitigation, it still lacks sufficient empirical evidence regarding the real economic effects of adaptation. Adopting difference-in-differences (DID) method, our article fills above research gap through exploring whether and how Chinese 2017 climate adaptive pilot cities (CAPC) policy affects firms’ cash holdings. Results reveal that CAPC policy may lower firms' cash holdings by 10.96 % and 10.64 %, respectively. This effect is particularly prominent for non-state-owned enterprises (NSOEs) or firms located in cities with higher climate risk perception. Additionally, the reduction in cash holdings resulting from CAPC policy can be attributed to the relaxation of financing constraints, reduction of bankruptcy risk, and alleviation of agency costs. Further analysis also shows that CAPC policy may improve the value of cash holdings. This article elucidates the influence of climate adaptation on cash management from developing countries.