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Confucianism culture and corporate cash holdings

Shihua Chen (School of Business Administration, Dongbei University of Finance and Economics, Dalian, China)
Yan Ye (School of Business Administration, Dongbei University of Finance and Economics, Dalian, China)
Khalil Jebran (School of Business Administration, Dongbei University of Finance and Economics, Dalian, China)
Muhammad Ansar Majeed (International Business School, Zhejiang Gongshang University, Hangzhou, China)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 17 March 2020

Issue publication date: 21 April 2020



This study examines how Confucianism, as an informal system, alleviates manager–shareholder conflicts and thus decreases managerial behavior of keeping higher levels of cash reserves. This study also investigates whether formal governance mechanisms (state ownership and institutional investors) moderate the relationship between Confucianism and cash holdings.


This study opts a sample of Chinese listed firms over the period of 2004–2015. The geographical-proximity-based method was followed to measure Confucianism, which is the distance between a firm's registered address and the national Confucianism centers.


The results indicate that Confucianism adversely influences cash holdings. The authors’ findings illustrate that Confucian culture promotes ethical behavior, and therefore, firms in a strong Confucianism environment keep a lower level of cash reserves. The authors further document that the effect of Confucianism on cash holding is weaker for state-owned firms but stronger for firms with low institutional ownership.

Practical implications

The findings provide implications for policymakers, academicians, and corporations. The results suggest that culture can reduce cash holdings. Especially, in emerging markets, such as China, where formal mechanisms are relatively less effective, informal institutions can serve an alternative system for alleviating adverse effects of agency conflicts.


This study contributes to the literature in two ways. First, this study contributes to cash holdings literature by showing that culture (Confucianism) is negatively associated with cash holdings. Second, this study extends the incumbent literature that seeks to explore how Confucian culture influences corporate behavior. To the best of the authors knowledge, this is the first study that identifies that Confucianism is associated with cash holdings.



Funding: This article is supported by National Natural Science Foundation of China (Project Numbers: 71472030, 71533002).We are thankful to Dayong Zhang (The Editor) and three anonymous referees for many helpful comments and suggestions. We are grateful to David H. Zhu for many suggestions on the earlier draft of the manuscript.


Chen, S., Ye, Y., Jebran, K. and Majeed, M.A. (2020), "Confucianism culture and corporate cash holdings", International Journal of Emerging Markets, Vol. 15 No. 6, pp. 1127-1159.



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