Is green revenue vanity or sanity? Evidence from corporate cash holdings

We construct a novel corporate green revenue dataset in China to investigate the effect of green revenue on corporate cash holdings. We find that firms with a higher percentage of green revenues tend to hold less cash. Economically, a one-standard-deviation increase in green revenue scaled by total revenue leads to a 3.56 % decline in cash holdings scaled by total assets. This negative relationship is more pronounced in firms with high precautionary motive. Additionally, firms with green revenues tend to exercise real options to invest in response to climate change risks, with the necessary cash primarily sourced from external financing activities rather than operating activities. Our findings shed light on the sane effects of green revenue on corporate behaviour.