Does carbon intensity matter for firm cash holdings policy? Evidence from the financial crisis of European countries

Purpose This study investigates the relationship between carbon intensity and firm cash holdings in listed companies across the European Union (EU) and Western Europe, particularly before and after the global financial crisis. Design/methodology/approach Using collected data on listed firms, we use a panel regression model, ordinary least square (OLS) and quantile regression analysis to conduct investigations for a sample of 76,068 firm-year observations located both in the EU-28 and Western European countries. Findings The findings show that a firm's high carbon intensity in publicly listed firms in European countries leads the firm to hold more cash, which is consistent with the precautionary motive. OLS regression results show that there is no significant relationship between carbon emissions and cash holdings, except that CO2PC has a positive cash holding measured by CIE both in the long-term and post-crisis. Furthermore, to investigate the effect of a firm's carbon intensity on cash holdings depending on market structure, we used the existing industry-competition measure, the Herfindahl-Hirschman Index (HHI) indicator. The Quantile regression findings suggest that HHI has a statistically significant and negative influence on the CO2Intensity level both in long-term, pre- and post-crisis periods, implying that an improvement in Europe's market structure shares strength will play an important role in diminishing carbon emissions. Practical implications Carbon intensity and its regulation allow firms to hold more cash holdings, and thus policy makers, executives and regulators should be aware that environmental regulations may increase firms' precautionary cash demand, affecting their investment capacity. Originality/value Owing to the increasing demands from regulatory bodies and regulators for better transparency disclosures on carbon intensity and its performance, the findings evidenced from our study are significantly important for investors, shareholders, regulators, policy makers, executives, scholars and firms.