Sustainable development in natural resources industry: is geopolitical risk a catalyst for corporate excess cash holdings?

Abstract

With the outbreak of the Russia-Ukraine conflict, combined with the COVID-19 epidemic and the Federal Reserve’s interest rate hike, geopolitical risks have increased sharply, which has brought great pressure on the sustainable development of natural resources industry. This study aims to discuss the impact of geopolitical risk (GPR) on corporate excess cash holdings in China’s natural resources industry. The findings suggest that GRP can encourage enterprises in the natural resources industry to hold more excess cash. The findings still hold with a suite of robustness tests. The study also evidences that the above effect is more significant for state-owned enterprises, enterprises in the mining industry, and large-scale enterprises. Finally, further results show that with the increase of GPR, enterprises with strong risk-taking capacity tend to hold more excess cash, while enterprises registered in higher market-oriented regions are inclined to retain less excess cash. These findings can conduce to a deep understanding of the influence of GPR on corporate excess cash holdings and serve as a reference for policy-makers to adjust policies.

Keywords:

• Sustainable development
• geopolitical risk
• excess cash holdings
• natural resources industry

JEL CODES:

• D01
• D22
• G30
• Q01

Acknowledgements

This work was supported by the National Natural Science Foundation of China (No: 72004150), China Postdoctoral Science Foundation (No: 2021M692323), the funds of Sichuan University (No: SKSYL2021-04), and the funds of Social Science Key Research Base of Sichuan Province (No: Xq21B05).

Disclosure statement

The authors declare no conflicts of interest in relation to this article.

Notes

1 Data source: https://www.wind.com.cn/