When green signals encounter information smog: green factory certification and corporate cash holdings

This study explores the relationship between green factory certification and corporate cash holdings. The results show that certified firms tend to increase their cash holdings. Further analyses reveal that green factory certification promotes green investment by firms, thereby increasing their cash holdings. In addition, the positive association between green factory certification and cash holdings is more pronounced among firms with weaker green innovation foundations and greater financing constraints, jointly supporting the precautionary motive for cash holdings. Moreover, this association is concentrated in firms operating in poor information environments, where the signalling benefits of certification are not effectively transmitted to stakeholders, thereby prompting cash holdings. Our analysis of the economic consequences reveals that the increased cash holdings from certification damage firm value. This negative effect manifests primarily in poor information environments. Overall, the study indicates that in poor information environments, green factory policies drive firms to hoard cash on the basis of the precautionary motive, thereby harming firm value. These findings offer vital insights for effectively implementing certification-related environmental policies, and highlight the need to improve information environments alongside advancing green factory initiatives to mitigate the potentially negative effects of such policies.