Mandatory Information Disclosure Regulation and Corporate Cash Holdings: Evidence From a Quasi-Natural Experiment

Abstract

This paper examines the impact of mandatory information disclosure regulation on corporate cash holding decisions, a fundamental component of working capital management. Using industry-specific information disclosure guidelines as a quasi-natural experiment that introduces shocks to disclosure practices across different sectors, we find that the implementation of these regulations leads to a significant reduction in corporate cash holdings. We identify two mechanisms underlying this effect. Specifically, the implementation of the information disclosure regulation lowers agency costs and reduces the operational risks faced by firms, leading to lower cash holdings. Heterogeneity analysis shows that the negative relation between information disclosure regulation and corporate cash holdings is stronger among firms facing greater financial constraints, those with more effective internal controls, firms in highly competitive industries, and those operating in high-tech sectors. The reduction in corporate cash holdings driven by information disclosure regulation enhances firms' sustainable development capacity and alleviates underinvestment problems, supporting more efficient resource allocation and effective working capital management.