From ESG uncertainty to cash holding: the pathway through environmental expenditures

This study investigates how ESG-related uncertainty (SUS) influences corporate cash holding (CHO) strategies and explores the mediating role of environmental expenditures (ENX) in this relationship. The analysis is based on a balanced panel dataset comprising 2,678 firms from BRICS economies over the period 2010–2023. To ensure robustness, the study employs a range of empirical techniques, including fixed effects, two-stage least squares (2SLS), and system GMM, effectively addressing issues of heteroscedasticity and endogeneity. The empirical findings reveal that SUS positively influences cash holdings, consistent with the precautionary motive in liquidity management. Furthermore, ESG uncertainty leads to higher environmental expenditures, which, in turn, positively influence cash holdings, thereby confirming the mediating role of ENX in the SUS – CHO relationship. The social implications of this study highlight the unintended consequences of regulatory ambiguity in ESG frameworks, including excessive cash hoarding. From a practical standpoint, the findings advocate for clearer, more stable ESG policies that can help firms reduce uncertainty and allocate capital more efficiently. This study contributes to the literature by integrating ESG uncertainty into corporate cash management analysis and unveiling a novel mediating pathway via environmental expenditures.