Digital government construction and corporate cash holdings: evidence from China

Digital government construction is profoundly reshaping the institutional environment for corporate operations. Using a sample of China’s listed firms from 2010 to 2023, we investigate the impact of digital government development on corporate cash holdings. The findings suggest that digital government construction induces firms to increase cash holdings. Mechanism tests show that this increase is driven by precautionary motives, as firms prepare for coping with reinforced administrative supervision, intensified market competition, and enterprise digital transformation under government digitalization. Cross-sectional analyses reveal that the effect is particularly strong in firms facing weaker corporate governance, lower market positions, and higher financial constraints. We also find that the increase in cash holdings driven by digital government development contributes to higher firm value. This study highlights the critical role of government in influencing corporate liquidity management and provides valuable insights for enterprises to adjust their financial strategies in response to digital government construction.