ESG assurance and cash holdings: evidence from 18 countries in Africa

Purpose This study investigates how environmental, social and governance (ESG) assurance impacts a firm's cash holdings in the unique African context. Design/methodology/approach Drawing on the spirit of the staggered difference-in-differences (DiD) framework, this study uses a panel data set based on a sample of 9,646 listed firms in 18 countries in Africa to exploit the temporal and cross-sectional variation in the impact of ESG assurance adoption on cash holdings between treated and untreated firms. The period of the sample covers 15 years, from 2009 to 2023. This study also mitigates potential endogeneity problems using a battery of tests. Findings Based on the stakeholder-agency and resource dependence theories, we find that ESG assurance reduces cash holdings. Specifically, this impact is more evident among firms with greater information asymmetry. Furthermore, our results suggest that following ESG assurance, firms reduce cash holdings and reallocate their resource toward the improvement of green investment and ESG performance. Research limitations/implications This study is important in projecting the need for transparency in sustainability disclosure. This is a key factor in both regional and global context due to international ownership dynamics, capital market complexities, supply chain linkages, and the impact of accounting on African social and economic development. This study assists managers, capital providers, and policymakers in leveraging ESG assurance as a mechanism to manage different interests among stakeholders and a consideration of resource allocation, and calls for investment in their capacity building to drive sustainability transparency. Originality/value This study differs from prior research in three ways. First, we uncover the role of ESG assurance in addressing the complexity of cash holding determination, particularly regarding the trade-off between agency problems and the risk of investment opportunity loss. Second, amid the scarce discussion of sustainability governance and cash holdings, we offer incremental knowledge of proactive sustainability governance to shape the cash holdings strategy. Third, we establish an overarching framework to incorporate a big picture of how firms leverage ESG assurance as a reflection of sustainability governance to address the challenges regarding external stakeholder relationships and critical resource access.