Internal Corporate Governance and Cash Holding in China: The Moderating Effect of Product Market Competition

Asymmetric information and economic uncertainty result in more severe financial constraints on Chinese enterprises. This induces them to hold more cash to defend against economic uncertainty and intense market competition. This study examines the correlation between internal corporate governance and cash holdings in China. It uses 6,849 observations from 922 Chinese listed companies between 2010 and 2022. Additionally, it uses the fixed effects method and the generalized method of moments for quantitative analysis, with internal corporate governance as the independent variable and cash holdings as the dependent variable. The observations illustrate that internal corporate governance has a significant positive effect on Chinese firms’ cash holdings. However, product market competition mitigates the relationship between corporate governance and cash holdings. This study efficiently connects internal and external governance mechanisms, and improves our understanding of corporate governance concerning cash holdings.