Do Firms Hoard Cash Under Environmental Pressure? Insights From GHG Emissions and Greenwashing Activities

Environmental accountability has become a global priority, with governments implementing policies like the Kyoto Protocol and the Paris Agreement. However, many firms continue to operate outside environmentally ethical standards, facing potential regulatory, financial, and reputational risks. By addressing endogeneity concerns, this study investigates whether firms hoard cash under environmental pressure, examining the impact of greenhouse gas (GHG) emissions on cash holdings in green countries between 2005 and 2020. Lower GHG emissions are associated with higher liquidity levels, supporting the idea that managers strategically retain cash to build stakeholders' trust and protect their firms against environmental uncertainty. Nonetheless, in cases of greenwashing (GW) activities, we find that managers tend to decrease cash reserves to gain a negotiating advantage with regulators when their environmental manipulation is uncovered. These results highlight an opportunistic dimension of cash management under environmental pressure. Accordingly, we urge environmental authorities to develop stricter standards, beyond existing international agreements, to constrain opportunistic managerial behavior and enhance corporate environmental accountability.