| dc.description.abstract | This study uses data from listed companies in Taiwan from 2017 to 2022 and employs the Maximum Likelihood Estimation (MLE) method to analyze the relationship between corporate ESG (Environmental, Social, and Governance) performance and cash holdings.Empirical results show a significant positive correlation between a company′s ESG scores and its cash holdings. Specifically, the higher the company′s ESG score, the higher its cash holdings. The estimation of the simultaneous equations of cash holdings and corporate risks indicates that the impact of ESG performance can be divided into direct and indirect effects through two channels: Firstly, the direct effect of ESG performance on cash holdings is significant and positive, indicating that companies with higher ESG ratings tend to hold more cash to meet potential financial needs and investment opportunities. Secondly, the indirect effects through the channels of systemic risk and idiosyncratic risk show that the systemic risk channel has a negative correlation, meaning that companies with higher ESG ratings reduce some of their cash holding needs by lowering systemic risk. However, the idiosyncratic risk channel shows no significant correlation, indicating that a company′s idiosyncratic risk does not significantly affect its cash holdings.
Considering the combined positive and negative effects, when the total effect is taken into account, companies with higher ESG ratings still show a positive correlation with their cash holdings. This indicates that companies with better ESG performance, while achieving sustainable development goals, still focus on maintaining cash holdings to ensure financial stability and flexibility. Compared to existing literature that only verifies the direct relationship between ESG performance and cash holdings, this study further analyzes the negative correlation of the systemic risk channel and the non-significant correlation of the idiosyncratic risk channel in the indirect effects. In terms of managerial implications, this study aims to provide valuable references for companies in formulating financial strategies and for investors in evaluating corporate value, promoting a balance between achieving sustainable development and maintaining financial stability. | en_US |