Impact of product-market competition on the Confucian culture-cash holdings relationship in Chinese firms

High cash holdings and weak formal governance lead to agency problems, and cultural norms play an important role in bridging this gap. Using 35,216 observations from Chinese listed companies between 2010 and 2024, this study examines how Confucian culture influences corporate cash-holding behaviour and how product-market competition moderates this relationship. Fixed-effects estimations indicate that Confucian culture encourages firms to maintain higher cash reserves to address financing frictions arising from information asymmetry and precautionary motives. However, intensified product-market competition weakens this positive association by improving information transparency and reducing excess cash retention. Robustness tests using a two-step system generalized method of moments confirm these findings and alleviate concerns about endogeneity. Overall, the results highlight a culturally embedded explanation for corporate cash holdings in China and demonstrate how external market competition constrains culturally driven financial conservatism, offering new theoretical and empirical insights into the interaction between informal institutions and corporate financial policy.