How does red culture affect corporates’ cash holdings? Evidence from China

Cash holdings are an essential element of corporate decision-making. Culture, such as the unique Chinese red culture created by the Communist Party of China during the Revolutionary War, affected corporate economic decisions. This study systematically evaluated the impact of red culture on corporate cash holdings. Based on a theoretical analysis, this study conducts an empirical analysis using data on Chinese-listed companies from 2008 to 2021. The results show that: (1) red culture reduces corporate cash holdings. For each unit of red cultural influence, corporate cash holdings decreased by 1.5979% points. (2) The role of red culture in reducing corporate cash holdings is heterogeneous; it plays a greater role in high long-term investment corporations than in low long-term investment corporations, in high investment opportunity corporations than in low investment opportunity corporations, and in duality corporations than in non-duality corporations. This study can help global investors understand China's culture and capital markets and will be the first step toward exploring the economic impact of red culture.