Review of Literature on Corporate Cash Holdings and Future Research Agenda in an ESG Framework

ABSTRACT

This study synthesizes the literature on corporate cash holdings under an ESG framework and develops a theoretically grounded future research agenda. Based on a systematic review of 116 studies screened from Scopus and Web of Science Core Collection, the literature is categorized into five streams: impacts of aggregate ESG, environmental, social, and governance factors on cash holdings, and reverse effects of cash holdings/financial slack on ESG‐related outcomes. ESG reshapes three established cash‐holding motives: the insurance value of liquidity, the financing wedge between internal and external funds, and agency costs of retained cash. The E, S, and G pillars present distinct mechanisms tied to environmental commitments, stakeholder/labor claims, and liquidity governance. Stronger ESG can reduce cash by lowering risk, financing frictions, or agency costs, while strategic liquidity needs, stakeholder commitments, and adverse ESG shocks may increase cash demand. Reverse evidence shows accumulated liquidity funds ESG investment and supports employment resilience, forming a dynamic bidirectional ESG‐cash relationship. Methodologically, OLS and fixed‐effects regressions dominate the literature, while quasi‐experimental, structural, and machine‐learning approaches remain rare. Future research could explore nonlinear, co‐determined ESG‐cash dynamics via E‐DSGE modeling, real‐options analysis, AI‐enabled liquidity management, and ESG contagion in strategic alliances.