Societal happiness and corporate cash holdings: The contingency role of climate policies

Although prior research on the determinants of corporate cash holdings has highlighted the importance of institutional and societal characteristics, the role of several national-level factors and the boundaries of their influence remain underexplored. This paper aims to address this gap by examining the effects of societal happiness and climate policies on corporate cash holdings. It specifically argues that both societal happiness and climate policies reduce firms' cash holdings, and that climate policies weaken the negative effect of societal happiness on cash holdings. Using Multi-Way Fixed Effects (FE) models on an unbalanced panel dataset of non-financial firms from eight countries between 2013 and 2022, the findings support these arguments. This study extends the literature on corporate cash holdings by demonstrating how socio-emotional conditions and climate policies/environmental performance jointly shape firms’ cash holdings.