The Degree of Corruption and Corporate Cash Holdings

This paper empirically investigates whether the degree of corruption affected the corporate cash holdings of Chinese-listed non-financial firms over the 2003-2013 period. We find that corporate cash holdings are negatively correlated with measures of corruption. For firms facing fewer financing constraints, the effect of corruption is more likely to reduce their cash holdings and exacerbate the tunneling of corporate controlling shareholders. These results indicate that corruption cannot reduce a business' degree of uncertainty. In addition, corruption will harm corporate value by controlling shareholders' tunneling. Our findings provide useful policy implications for China's economic reforms.