This study examines the association between air pollution and cash holdings using a sample of listed firms in Vietnam, a developing country that has a worrisome level of air pollution. Đề tài Hoàn thiện công tác quản trị nhân sự tại Công ty TNHH Mộc Khải Tuyên được nghiên cứu nhằm giúp công ty TNHH Mộc Khải Tuyên làm rõ được thực trạng công tác quản trị nhân sự trong công ty như thế nào từ đó đề ra các giải pháp giúp công ty hoàn thiện công tác quản trị nhân sự tốt hơn trong thời gian tới.
Trang 1The impact of air pollution on cash holdings of firms in
Vietnam
Nguyen, Liem 1 , Trinh, Tien 2 , Nguyen, Huyen 3 , Nguyen, Ly 4 , Le, Tu 5 , Pham, Van 6
1,2,3,4,5,6 University of Economics and Law, Ho Chi Minh City, Vietnam Vietnam National University, Ho Chi Minh City, Vietnam
* Corresponding author: Nguyen, Liem
E-mail address: liemnt@uel.edu.vn (Nguyen, T.L.), tientn20404c@st.uel.edu.vn (Trinh, N.T.), huyennhk20404c@
st.uel.edu.vn (Nguyen, H.K.H), lynvh20404c@st.uel.edu.vn (Nguyen, V.H.L), tulm20404c@st.uel.edu.vn (Le, M.T.),
vanpth20404c@st.uel.edu.vn (Pham, T.H.V)
1 Introduction
T he issue of air pollution has been
sig-nificant for the entire world To start with, substantial air pollution has a negative impact on both mental and physical
health of dwellers Exposure to small particles
endangers health conditions and increases risk
of contracting a variety of ailments (Franklin
et al., 2007) Interestingly, Dong et al (2021)
claim that air pollution has a significant effect
on analysts’ mood and is conducive to bad decisions of managers Air pollution limits cor-porate growth by decreasing corcor-porate market value, borrowing capacity, equity returns, and other resources (Li et al., 2019, 2021, Levy &
Yagil, 2011)
In response to air pollution, a number of envi-ronmental protection measures, including rules
to restrict businesses’ ability to operate, have been released Firms are also subject to societal disapproval if they fail to address
a firm Previous studies have revealed a range of factors affecting cash holdings, but little is known about a macro variable: air pollution, which is quite a pressing issue recently and globally This study examines the as-sociation between air pollution and cash holdings using a sample of listed firms in Vietnam, a developing country that has a worrisome level of air pollution The research sample covers non-financial firms listed on the Viet-nam Stock Exchange from 2016 to 2021, retrieved from Thomson Refini-tiv Furthermore, the authors also gather information on air pollution using the particulate matter measurement index (PM2.5) over the years 2016 to
2021 from the contribution of General Consulate of U.S in Vietnam The current research employs conventional estimation strategies including OLS, Fixed effects model, and Random effects model In contrast to previ-ous studies suggesting a positive linkage, we find that air pollution is not significantly related to cash holdings of firms in Vietnam This could be due
to the own situations in Vietnam and that air pollution could reduce (risky) investments We further find that leverage tends to make air pollution have
a more negative effect on cash holdings for firms in Vietnam The findings bring important implications, and are robust to several techniques to en-sure the robustness of findings.
Received
Revised
Accepted
7 th Jun 2023
30 th Aug 2023
14 th Sep 2023
Keywords
air pollution
cash holdings
developing country
Vietnam
interaction effect
DOI:
10.59276/JEBS.2023.12.2551
Trang 2tal concerns, thus losing access to resources
Therefore, firms are more likely to facilitate
investments enabling firms to act in line with
stricter environmental requirements (Farrell
et al., 2016; Zhao and Sun, 2016) In general,
the issue of air pollution in developing nations
should be more severe as developed countries
tend to be more e ffective in addressing
envi-ronmental issues.
In order to fund activities to battle
environmen-tal concern, cash is potential Generally, these
investments are quite expensive, while there is
no guarantee for associated financial returns
According to Pecking order theory (Myers and
Majluf, 1984), cash is the least expensive source
of financing due to asymmetric information
Information asymmetry is a major problem,
particularly in developing economies, making
it difficult for firms to obtain external
financ-ing at a reasonable cost Therefore, if firms in
highly polluted areas need to tackle
environ-mental issues, a natural tendency would be to
rely on the internally generated cash flows or
cash holdings; as a result, a positive association
between air pollution and cash holdings in a
developing country could be expected On the
other hand, it is also likely that less stringent
pollution-mitigating measures in less developed
nations refrain firms from saving cash to invest
in activities required to address environmental
pollution, leading to an insignificant relationship
between air pollution and cash holdings in such
countries
Various studies have identified determinants of
corporate cash holdings The macro-level
fac-tors include governmental effectiveness (Chen
et al., 2014; Thakur & Kannadhasan, 2019;
Chen et al., 2018), culture (Chen et al., 2015),
legal efficiency (Shah and Shah, 2016), public
trust (Dudley et al., 2016), political ambiguity
(Xu et al., 2016; Phan et al., 2019), tax
ambigu-ity (Hanlon et al., 2017), banking sector stabilambigu-ity
(Cui et al., 2020) However, there is little
re-search on how air pollution, also a macro-level
determinant, affects cash holdings Until
re-cently, only Li et al (2021) and Tan et al (2021)
have examined this link in China, pointing to a
positive relationship between the two factors.
Debt could affect firms’ tendency to invest in environmental projects, since highly indebted firms tend to be more financially constrained,
at least compared to trade credit financed firms (Guo et al., 2022) Therefore, even when firms are located in highly polluted areas, manag-ers are not likely to save cash for investment
if they have piles of debt to pay back Once again, environmental investment does not pro-vide a financial return, while eating up firms’
resources Vietnamese listed firms rely on debt financing due to the ubiquitous presence of banks At the same time, Vietnam’s environ-mental restrictions are quite laxed, incentiviz-ing firms to prioritize debt payback Given this setting, the current research seeks to confirm the impact of the interaction between leverage and air pollution on corporate cash holdings.
The current research contributes to the litera-ture in a number of ways Firstly, it examines the link between air pollution and cash hold-ings in a highly relevant context- Vietnam, a developing country This context is relevant
due to several rationales First, none research has been conducted in this country Second,
Vietnam has a fledgling financial market and high level of information asymmetry, so cash
is a highly important source of financing (Vo, 2018) Therefore, firms should have fewer incentives to invest in activities to solve pol-lution issue when the requirements are still laxed and the outcome of the investment is not certain Therefore, the impact of air pol-lution on cash holding could be different in Vietnam, compared to the finding of previous studies such as Li et al (2021) and Tan et al
(2021) Third , we believe that firms should have incentives to refrain from cash hoarding for environmental concerns if there is more debt Vietnam’s banking system is considered as
a critical source of financing and debt accounts for a large proportion of firms’ liabilities If debt tends to deter firms from saving cash to address environmental issues, this should be of important implications to stakeholders who care for environment We offer a range of robustness checks, after which the main results remain un-changed, which lends credence to our findings
Trang 3Specifically, we employ conventional estimation
strategies including OLS, Fixed effects model,
and Random effects model for a sample of listed
firms from 2016 to 2021 We further use
robust-ness checks, including the addition of control
variables and the examination of the factor of
Covid-19 outbreak
The rest of the current research progresses as
follows Section 2 exhibits the literature and
hypothesis development Sections 3 discusses
the sample, methodology and variable
con-struction Section 4 presents the results of our
empirical examination and the discussion of
results Finally, we present the concluding
remarks, limitations and recommendations.
2 Literature review and hypothesis
devel-opment
The literature suggests a number of harmful
impacts of air pollution on dwellers, degrading
living quality ( S tafford, 2013; Plaisier et al.,
2010) A ir pollution impairs cardiac and
respi-ratory functions, increasing chances of fatality
Franklin et al ( 2015) attribute the amount of
sick days to air pollution Not only does air
pollution degrade physical health, but it also
exerts depressing effect (Zhang et al., 2017),
causing nervousness and irritations ( Evans et
al., 1988) as well as suicidals ( Bakian et al.,
2015)
As far as firms are concerned, air pollution
could lead to poor decision making Ackert et
al (2003) argue that air pollution diminishes
people’s capacity for information processing
Firms might also have to hoard cash to offer
welfare benefits to keep employees or to pay
healthcare expenditure (Apkalu & Ametefee,
2017) F ailing to adhere to environmental
regulations causes firms to experience a sharp
decline in stock values (Ramiah et al., 2013)
Tan et al (2021) suggest that air pollution can
enable pessimism and lower management
cog-nitive capability, as a result, firms tends to raise
cash holding to prevent risk To sum up, firms
have multiple performance-related reasons to
address environmental issues
Finally, to battle air pollution, governments
have been introducing a number of environ-mental policies ( Zhang et al., 2016) Envi-ronmental taxes and administrative fines have increased environmental costs for businesses, forcing investment s on anti-pollution measures (Hu et al., 2022) As a result, large cash hold-ings are required for cautious motives (Keynes, 1936).
Accordingly , it is assumed that cash holdings would positively correlate with air pollution
H1: Air pollution is positively associated with firm’s cash holdings.
Air pollution lowers risk-taking incentives
Air pollution tends to reduce firm investment
in risky projects In addition, air pollution can enhance pessimism and lower management cognitive ability (Tan et al., 2021) As there is lower risk related to investment, firms might have less need to hold cash for precautionary reasons.
Interestingly, Tan et al (2021) find that firms with more cash holdings tend to have lower performance in highly polluted cities in China, compared to less polluted ones Therefore, this evidence could imply that firms should not hold much cash in highly polluted environ-ments First, if air pollution mentally makes executives more risk adverse, firms tend to conduct less investment, especially risky investments, thus making cash holdings costly and prone to subject to agency cost and oppor-tunity cost, see, for example, Jensen & Meck-ling (1976) Second, the regulations in Vietnam might be not as strict as other jurisdictions, so the need for cash holdings to address environ-mental issues should be lower
Vietnam has actually experienced the fastest growing per-capita greenhouse gas emitter annually in 20 years (Internatinonal Trade Administration, 2022) Furthermore, unsus-tainable exploitation of natural resources has been alarming and adversely affect long-term growth It seems that coupled with the strong increase in urbanization and economic growth, air pollution is the cost that Vietnam is paying
Even though stricter laws have been introduced with some enforcement of dust management measures, enhanced monitoring of industrial
Trang 4emissions, the enforcement is not strong
(Inter-national Trade Administration, 2022) Nguyen
(2021) using Provincial Governance and Public
Administration Performance Index Surveys
to show that the percentage of respondents
choosing environment as their biggest concern
has dropped from 12.53 percent to 8.85 percent
from 2016 to 2019 Finally, studying
Vietnam-ese Environmental Protection Law, Nguyen
(2020) associates it with backward legislation
and confirms that the enactment capacity is
still low
As a result, air pollution should be negatively
related to cash holdings.
H2 : Air pollution is negatively related to firm’s
cash holdings
If firms need to invest in pollution-abating
activities, cash might help due to its low cost,
at least compared to trade credit (Zhang et al.,
2019) Cash enables firms to continue to fund
their current projects in the event of any shocks
to the credit market (Kaplan and Zingales,
1997; Campbell et al., 2008)
Because pollution-mitigating investment is
ex-pensive and not meant to provide financial
re-turns, compared to investments in production,
firms are more inclined to utilize cash than
debt when investing in pollution protection
Debt puts firms under pressure to pay it back,
which encourages them to invest effectively
This negative effect might be stronger when
cash plays a more significant role as a source
of financing In a developing country like
Viet-nam, information asymmetry is high and the
cost of external financing is high, accordingly
Furthermore, the regulatory strictness is low,
compared to other countries, to allow more
for-eign direct investment and economic growth
These institutional traits make it more likely
for firms to use cash for activities that generate
profits to pay for loans, rather than investments
in pollution control
From the above arguments, debt may weaken
(strengthen) the positive (negative) effect of
cash holdings on investments in pollution
con-trol, in line with the argument that debt reduces
capacity for environmental research (Zhang et
al., 2019) Therefore, it is expected that
lever-age reduces the correlation between air pollu-tion and cash holdings.
H3: The interaction between leverage and air
pollution has a negative association with firm’s cash holding.
3 Research Methodology
The research sample in this study is non-financial firms listed on the Vietnam Stock Exchange from 2016 to 2021 The data were retrieved from Thomson Refinitiv financial database We removed observations that have extreme values, such as negative equity or total debt larger than total assets Firms in the finan-cial sector including banks and finanfinan-cial insti-tutions and insurance companies are excluded from the sample because their financial state-ments differ significantly from the rest (Pan-dey, 2001) The final dataset consists of 2,282 observations, covering 385 firms About a third of the firms are in Industrials (137), while another third (127) are in other manufacturing industries, namely Basic materials, Consumer cyclical and Consumer noncyclicals
We have gathered information on air pollution using the particulate matter measurement index (PM2.5) over the years 2016 to 2021 from the contribution of General Consulate of U.S
in Vietnam The U.S General Consulate has installed air quality monitors in several prov-inces to measure PM 2.5 and publish the data
to monitor air quality in Vietnam (U.S Em-bassy & Consulate in Vietnam, n.d) We obtain the data and calculate the average index of air quality during a year
To test the individual effect of air pollution on cash holdings (Hypotheses H1 and H2), the baseline model in this research is as follows:
Cash i,t = β 0 + β 1 PM25 ijt + β 2 Size i,t + β 3 Lev i,t +
β 4 CFOA i,t + β 5 PTB i,t + β 6 NWC i,t + β 7 ROA i,t + Industry dummies + ε i,t (1)
To test the moderating effect of leverage on the link between air pollution and cash holdings (Hypothesis H3), the interaction term is added
as follows:
Cash i,t = α 0 + α 1 PM25 ijt + α 2 Lev i,t +
α 3 PM2.5*Lev i,t + α 4 Size i,t + α 5 CFOA i,t + α 6 PTB i,t
Trang 5+ α 7 NWC i,t + α 8 ROA i,t + Industry dummies +
Where: cash is the dependent variable,
mea-sured by cash and cash equivalents divided by
total assets (Guizani, 2017; Habib et al 2017)
PM25 is the proxy for air pollution, referring
to to particulate matter with an aerodynamic
equivalent diameter less than or equal to 2.5
microns in the atmosphere, which can go
directly to the alveoli PM2.5 is a conventional
measure of air pollution, see, for example, Li et
al (2021) and Tan et al (2021) Unfortunately,
other measures of air pollution in Vietnam are
quite limited, resulting in considerable loss in
observations Therefore, we decide only use
PM2.5 as our sole proxy for air pollution
Firm scale (Size) is measured as the logarithm
of total assets at the end of year t Leverage
(Lev) is computed as the ratio of total debt to
total assets (Tan et al., 2021; Li et al., 2021,
Gul et al., 2020, Phan et al., 2020) Cash flow
(CFOA) is included, because firms that have
higher operating cash flows, calculated as
the ratio of operating cash flow to total
as-sets, may hold more cash (Opler et al., 1999)
Growth opportunities (PTB) are measured as
the ratio of the market value to book value of
equity (Phan et al., 2020) Net working capital
(NWC) is measured by the difference between
current assets and current liabilities to total
as-sets (Gul et al., 2020) Return on asas-sets (ROA)
is defined as net income divided by total assets
Finally, firms of different industries may have
different levels of cash due to their intrinsic op-erations Therefore, industry dummies, in line with Thomson Reuters classification scheme, are added to control for this potential
The current research employs conventional estimation strategies including OLS, Fixed effects model, and Random effects model De-fects including heteroskedasticity and autocor-relation could be handled with robust standard error Furthermore, in order to determine whether multicollinearity between variables exists, we use the Variance Inflation Factor (VIF) (Ke nnedy, 1992) Finally, to ascertain the findings, w e add important control vari-ables First, we control for the level of annual industrial production in each province and the
level of corporate support policy in each prov-ince (Support variable), as well as the investi-gation of the effect of Covid-19 outbreak The rationales for the inclusion of these factors are discussed in the robustness check section All the estimations are performed using Stata 14
4 Empirical results and discussions
Table 1 provides the descriptive statistics for the variables in the empirical models The average value of cash holdings in Vietnam is 15.7%, roughly the same as in the study of T an
et al (2021) for Chinese companies for the period from 2013 to 2018 The average value
of PM2.5 air pollution concentration is 88.3 , ranging from 35.59 to 117.78, suggesting that
Table 1 Descriptive statistics
Source: Author’s calculation from research data
Trang 6the overall air quality in Vietnam is poor In
Southeast Asia, Vietnam’s cities are ranked
poorly against other cities in the region , and
globally, Vietnam ranks 36/117 countries with
the highest concentration of PM2.5
(Vnex-press, 2022) The mean of leverage is about
19.6%, indicating that about one fifth of total
assets are financed by debt
Table 2 presents the pairwise correlation
coef-ficients of variables in the model In general,
most of the correlation coefficients between
variables are quite low Air pollution has a
negative association with firm’s cash
hold-ings, offering some first evidence to support
the negative effect hypothesis Nevertheless,
the coefficients in the correlation matrix do not
necessarily constitute a valid base for causal
inferences; as a result, regression analysis is
conducted to give a more robust basis.
Table 3 provides regression results to analyze
the relationship between firm’s cash holdings
and air pollution levels of listed firms in
Viet-nam OLS result suggests that PM2.5 does not
have a significant association with cash at 10
percent The result, therefore, does not support
either Hypothesis H1 or H2 This result also
holds for panel data regression technique that
controls for individual effects which are
preva-lent due to panel data structure (Column 2)
The research result differs from those of
previ-ous studies to some extent Tan et al (2021)
report a positive relationship between the
two factors, but claim that this is due to some
cognitive bias: air pollution causes managers to
be pessimistic in terms of earnings forecasts as well as suffer cognitive bias toward risk aver-sion Tan et al (2021) also claim that the posi-tive relationship between the two factors are due to the strict regulation of Chinese govern-ment Meanwhile, Li et al (2021) argue that air pollution increases the level of cash holdings to fund investments in environmental activities
Nonetheless, Li et al (2021) acknowledge that firms that generate a significant amount of pol-lution are frequently the backbone of the local economy in China If excessive interventions are implemented against heavy polluting busi-nesses, negative impacts on local economic and social development could be expected As
a result, the government might compromise and keep these polluting firms operating nor-mally, leading to these large enterprises feeling less pressure to keep cash for pollution-abating measures Therefore, even though positive relationship between air pollution and cash holdings is recorded, it is still possible that
if regulations are not so strict or the attitude
of government/citizen is not demanding, this relationship could become insignificant
Indeed, the insignificant effect is recorded in the present study First, air pollution could lead
to a tendency to avoid risk among managers,
so firms are likely to reduce (risky) invest-ments This can lead to lower cash held for precautionary purposes for firms in highly pol-luted areas In addition, the attitude of people
Table 2 Correlation matrix
cash 1.0000
size -0.1672 1.0000
nwc -0.2427 -0.2155 1.0000
roa 0.3318 -0.0109 0.0409 1.0000
ptb 0.1236 0.2585 -0.1293 0.2727 1.0000
lev -0.3428 0.3655 -0.2925 -0.2414 0.0070 1.0000
cfoa 0.1776 0.0008 -0.1872 0.3324 0.0751 -0.1384 1.0000
pm25 -0.0519 0.0512 0.0449 -0.0338 0.0083 -0.0251 -0.0703
Source: Author’s calculation from research data
Trang 7towards protecting the environment is not
seri-ous and laws need to have stronger enactment
in reality This could be due to the fact that
Vietnamese citizens have been accustomed to
adapting to poor air quality over a long period
of time, as a result of some sacrifice to
at-tract foreign investment to facilitate economic
growth For example, Kim et al (2020) point
out that the exposure to air pollution raises the
awareness of Vietnamese citizens, but there is
no clear linkage between such exposure and
opposition to coal plants Also, in line with Li
et al (2021), polluting firms could be
impor-tant to the economy, so firms might feel less
pressing to solve environmental issues
Fur-thermore, there are a considerable number of
vehicles commuting, contributing significantly
to air pollution by emitting combustion-related pollutants that have reached alarming levels (Nguyen et al., 2021) This is not related to firms’ behavior, partly justifying the insignifi-cant effect of air pollution on cash holdings.
We improve the robustness of the findings by adding important control variables First, in Column (3), we control for the level of an-nual industrial production in each province (PI variable) The impact of air pollution (if any) on cash holdings could be, indeed, due to the impact of high levels of industrial produc-tion, and investment and firm operations are obviously linked to decisions related to cash management Second, in Column (4) we
con-Table 3 The effects of air pollution on firm’s cash holdings
Dep Var.
cash OLS (1) REM-robust (2) REM-robust (3) REM-robust (4)
size -0.011*** (0.002) -0.013*** (0.004) -0.013*** (0.004) -0.013*** (0.004) nwc -0.302*** (0.016) -0.279*** (0.028) -0.279*** (0.028) -0.279*** (0.028) roa 0.560*** (0.044) 0.240*** (0.049) 0.247*** (0.050) 0.241*** (0.050) ptb (0.002) 0.003 (0.002) 0.0009 (0.002) 0.0006 0.0006 (0.002) lev -0.345*** (0.020) -0.265*** (0.035) -0.262*** (0.0002) -0.263*** (0.035) cfoa -0.053** (0.023) (0.020) 0.016 (0.020) 0.016 (0.021) 0.017 pm25 (0.0001) -0.0002 (0.0002) -0.0003 (0.0002) -0.0002 (0.0002) -0.0003
cons 0.460*** (0.060) 0.526*** (0.118) 0.574*** (0.123) 0.500*** (0.117)
Standard error in brackets; *, **, *** Significant at the 10%, 5%, 1% level, respectively PI: industrial
production index, Support: support for business index (taken from Provincial Competitiveness Index)
Source: Author’s calculation from research data
Trang 8trol for the level of corporate support policy
in each province (Support variable) These
variables are taken from PCI website
(PCIViet-nam, 2023) If firms receive high support from
local governments, it might imply that firms
could be partly exempted from strict pursuance
of environmental standards Therefore, the
inclusion of these extra variables could change
the previous result Nonetheless, PM25 is still
insignificant and the size of coefficient does
not change markedly
Furthermore, we examine the factor of
Cov-id-19 outbreak The virus outbreak already has
exerted a significant impact on firms
world-wide on all aspects Studies have shown that
due to lockdown policies to prevent the spread
of Covid-19, air pollution reduces Addition-ally, the outbreak effectively affects invest-ment opportunities and introduces uncertainty
to firms’ operations, obviously affecting cash holdings Given that this factor affects both air pollution and cash holdings at the same time,
we divide the sample to two periods: before
2020 (when there is no obvious impact of Co-vid-19 outbreak) and from 2020 to 2021 (when there is strong impact felt across the economy)
Table 4 shows the estimation results for both periods, with (Columns 1, 2) and without further control variables (Columns 3, 4) PM25 remains insignificant throughout the four specifications, ensuring the robustness of the previous findings
Table 4 The effects of air pollution on firm’s cash holdings-Covid factor
Dep Var.
cash Before (1) During (2) Before (3) During (4)
size -0.019*** (0.005) -0.009** (0.005) -0.019*** (0.005) -0.010** (0.005) nwc -0.309*** (0.039) -0.255*** (0.032) -0.310*** (0.039) -0.258*** (0.032) roa 0.306*** (0.063) 0.281*** (0.067) 0.308*** (0.063) 0.284*** (0.069) ptb (0.004) 0.005 (0.002) -0.002 (0.004) 0.005 (0.002) -0.002 lev -0.240*** (0.040) -0.237*** (0.043) -0.241*** (0.039) -0.228*** (0.043) cfoa (0.033) 0.007 (0.023) 0.020 (0.033) 0.009 (0.023) 0.025 pm25 (0.0002) -0.0002 (0.0003) -0.0005 (0.0002) -0.0002 (0.0004) -0.0002
cons 0.660*** (0.132) 0.438*** (0.132) 0.960*** (0.245) 0.408** (0.166)
Standard error in brackets; *, **, *** Significant at the 10%, 5%, 1% level, respectively PI: industrial
production index, Support: support for business index (taken from Provincial Competitiveness Index)
Source: Author’s calculation from research data
Trang 9In Vietnam, banks play a significant role in
the financial market as the primary source of
funding for businesses (Nguyen et al., 2018; Vo,
2017) In essence, Zhang et al (2019)
sug-gest that debt may have a negative effect on
pollution protection investment due to its high
financial cost, implying that debt basically
reduces capacity for environmental research
Since investments in environment protection do
not generate profits, firms taking out loans must
put their attention on paying off debt rather than
utilizing that cash to fund such projects This
effect should strengthen in a country with weak
environmental laws/weak enforcement of
envi-ronmental standards As a result, it is anticipated
that debt can moderate the relationship between
firm’s cash holdings and air pollution We
as-certain this through examining the effect of the
interaction between leverage and air pollution
on firm’s cash holdings.
In Table 5, the variable lev*pm25 has a
negative and significant association with cash,
confirming the hypothesis H3 This result
could indicate that in the case of Vietnam, due
to more laxed environmental regulation and
enforcement and attitude of citizens toward environmental issues, debt might emerge as a factor that reduce the need to invest in envi-ronmental protection activities This effect is present for whole the period, as well as before and during the outbreak of Covid-19
5 Conclusions and Implications
Holding the right amount of cash is important
to capitalize on investment opportunities, to facilitate precautionary purposes yet effectively address opportunity cost/agency cost Many studies have provided insights into understand-ing the changes in cash holdunderstand-ings; nonetheless, air pollution receives little attention, especially
in the setting of developing countries
Using a sample of listed firms in Vietnam from
2016 to 2021, we document a non-significant association between air pollution and cash holding Even though this is somehow in-consistent with the positive linkage found in studies in China (Tan et al., 2021; Li et al., 2021), we offer some plausible explanations
to harmonize the results First, the
environ-Table 5 The moderating effect of the relationship between leverage and PM25 on firm’s
cash holdings
cash Whole sample During Covid-19 Before Covid-19
size -0.015*** (0.004) 0.012** (0.005) -0.020*** (0.005) nwc -0.273*** (0.028) 0.242*** (0.033) -0.306*** (0.038) roa 0.247*** (0.049) 0.287*** (0.068) 0.317*** (0.062)
pm25*lev -0.003*** (0.0003) -0.002*** (0.0005) -0.002*** (0.0004)
Standard error in brackets; *, **, *** Significant at the 10%, 5%, 1% level, respectively Lev variable does
not exist in the model since it causes multicollinearity according to our Variance Inflation Factor test, not
tabulated here
Source: Author’s calculation from research data.
Trang 10mental protection measures might force firms
to increase cash to fulfil the requirements (Hu
et al., 2022) as well as to serve cautious
mo-tives (Keynes, 1936), laxed regulations and
enforcement together with the not so serious
environmental concerns of people in Vietnam
could lead to an insignificant link between cash
and air pollution Second, air pollution could
also have a negative impact on cash holdings if
managers are made more risk averse and invest
less in general (Tan et al., 2021) In turn, due
to the investment in less risky projects or just
fewer projects overall, less cash is required
Therefore, to encourage firms to be more
envi-ronmentally responsible, regulations should be
stricter and should be strictly enacted.
Secondly, we find that the interaction between
leverage and air pollution has a negative
as-sociation with cash holdingsthe interaction
This might be because activities in environ-mental protection do not generate returns, while firms taking out loans have to prioritize debt payment This effect should strengthen
in a country with weak environmental laws/
weak enforcement of environmental standards, such as Vietnam This implies that for a firm to
be more environmentally responsible, its debt levels should be lower to allow it to have more flexibility to care for investments in environ-mental protection
This study would benefit more if it could ex-pand the sample to conclude other developing countries to see whether the findings hold In addition, we lack data for other proxies for air pollution in Vietnam Therefore, it would serve
to consolidate the results to use other proxies
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