Applied Economics

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Waste disclosure and corporate cash holdings

Samuel Jebaraj Benjamin, Dereje Getachew Regasa, Nirosha Hewa Wellalage

& M Srikamalaladevi M Marathamuthu

To cite this article: Samuel Jebaraj Benjamin, Dereje Getachew Regasa, Nirosha Hewa
Wellalage & M Srikamalaladevi M Marathamuthu (2020) Waste disclosure and corporate cash
holdings, Applied Economics, 52:49, 5399-5412, DOI: 10.1080/00036846.2020.1764480

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APPLIED ECONOMICS
2020, VOL. 52, NO. 49, 5399–5412
https://doi.org/10.1080/00036846.2020.1764480

Waste disclosure and corporate cash holdings

Samuel Jebaraj Benjamin a, Dereje Getachew Regasa b
, Nirosha Hewa Wellalage a

and M Srikamalaladevi M Marathamuthu a

a
School of Accounting, Finance and Economics, University of Waikato, Hamilton, New Zealand; bDepartment of Accountancy and Finance,
University of Otago, Dunedin, New Zealand

ABSTRACT KEYWORDS
In this paper, we address an important and emerging question: Can firms’ voluntary waste Cash holdings; waste
disclosure affect corporate cash holdings? Using a sample of S&P 500 firms, we find strong disclosure; corporate
evidence for a positive relationship between waste disclosure and the cash holding policy of governance; industry
firms. Furthermore, we find that waste disclosure significantly increases cash holdings only for firms affiliation
with strong corporate governance quality. We also find that the significant relationship between JEL CLASSIFICATION
waste disclosure and cash holdings remains unchanged only for firms that operate in environmen- G30; G32; G34; M14; Q53
tally sensitive industries. Our paper provides novel evidence on the role of voluntary waste
disclosure as an environmental dimension that influences the cash policy of firms and highlights
the little-known issue of waste disclosure as a significant research topic.

“Trash has become America’s leading export: mountains

of waste paper, soiled cardboard, crushed beer cans and
junked electronics”. (Humes 2012)
“We can’t run away from America’s garbage crisis”.
(Briks 1989)
I. Introduction
One of the most daunting environmental issues
facing the world today is the mounting waste pro-
blem. Waste is defined as ‘anything that is unwanted
or unusable and is generally classified as hazardous or
non-hazardous and includes, among others, plastic,
garbage, chemical waste, organic waste, nuclear
waste’ (Environmental Protection Agency 2014).
The United States alone produced about 228 million
tons of waste in 2006, and that figure climbed to
254 million tons by 2013 (Simmons 2016). Given
that the concerns of stakeholders and investors
around environmental issues have grown signifi-
cantly in recent years, corporations are motivated to
provide voluntary environmental information (see
Braam et al. 2016; Liao, Luo, and Tang 2015). These
concerns and pressures on environmental issues
further represent a tremendous commitment for
companies and induce them to adjust their financial
policies (Magness 2009; Saka and Oshika 2014; The
New York Times 2019). Despite the dramatic
increase in the prevalence of waste, the paucity of
research on waste disclosure by corporations is some-
what surprising. Similarly, with the exception of
a study that examines the influence of employee
welfare on cash holdings (Ghaly, Dang, and
Stathopoulos 2015), little is known about the impact
of waste disclosure on the financial policies of firms,
and in particular, on their cash holdings. This paper
helps bridge these gaps by examining whether waste
disclosure affects corporate cash holdings.
Using a sample of S&P 500 firms over the per-
iod 2010–2015, we find strong evidence that firms
hold more cash when they have higher levels of
waste disclosure. We then go a step further and
investigate how waste disclosure are important to
cash holdings. Specifically, we investigate two
channels (i.e., corporate governance and industry
affiliation) through which waste disclosure influ-
ence cash holdings. Our empirical results further
show that the positive effect of waste disclosure on
cash holdings is significant only in firms with
strong corporate governance. We also find that
the significant and positive association between
waste disclosure and cash holdings remains
unchanged in firms that operate in environmen-
tally sensitive industries.

CONTACT Samuel Jebaraj Benjamin samuel.benjamin@waikato.ac.nz School of Accounting, Finance and Economics, University of Waikato, Hamilton, NZ
© 2020 Informa UK Limited, trading as Taylor & Francis Group
5400 S. J. BENJAMIN ET AL.
This study makes four key contributions to the
literature. First, we provide novel evidence that
firms’ waste disclosure affects their cash holding
choices. To the best of our knowledge, this is the
first study to establish such a link. While previous
research on the determinants of corporate cash
holdings has examined operational and financial
considerations, such as growth opportunities,
financial constraints, and cash flow volatility,
(Bates, Kahle, and Stulz 2009; Opler et al. 1999),
recently, there has been an emerging interest to
extend this line of enquiry to examining the envir-
onmental and social dimensions of firms. In con-
trast to Ghaly, Dang, and Stathopoulos (2015), who
contribute to this line of enquiry by revealing that
employee welfare influences a firm’s cash holding
choices, we reveal how a firm’s cash holding levels
are affected by waste disclosure.
Second, our study contributes to knowledge
around voluntary environmental disclosure prac-
tices by focusing specifically on waste disclosure.
As an issue, waste differs to the effects of green-
house gas (GHG) emissions (Liao, Luo, and Tang
2015) and as such, the associative patterns of each
issue are expected to vary and deserve separate
investigations. Although there has been some effort
to pay more attention to the waste problem in
recent times, it is still narrowly focused (such as
the Plastic Disclosure Project) and is still in its
infancy.1 In a broader sense, our focus on the
waste issue bridges this paucity of research and
propels it to the forefront of our attention and
presents a strong case for more future research in
this area.
Third, our paper contributes to existing research
on corporate governance and voluntary environ-
mental disclosure. Prior studies on corporate gov-
ernance and voluntary environmental disclosure
have tended to examine the carbon disclosure prac-
tices of firms (Ben-Amar and McIlkenny 2015;
Mallin, Michelon, and Raggi 2013; Rankin,
Windsor, and Wahyuni 2011), overlooking the
issue of voluntary waste disclosure. Finally, our
study contributes to existing literature on industry
affiliation and voluntary disclosure (see Liu and
Anbumozhi 2009; Brammer and Pavelin 2006) by
showing that in the face of growing environmental
1
For more details on the Plastic Disclosure Project, see www.plasticdisclosure.org/.
concerns, firms from environmentally sensitive
industries will adjust their cash holdings positively
in relation to their voluntary waste disclosure.
The remainder of this paper is structured as fol-
lows. Section 2 describes the theoretical background
and hypotheses development. Section 3 discusses
our data and empirical strategy. Sections 4 and 5
present the empirical results and sensitivity analyses,
while Section 6 concludes the study.
II. Theoretical background and hypotheses
development
No single theory directly predicts the nature of the
relationship between waste disclosure cash hold-
ings (including the influence of corporate govern-
ance quality and industry affiliation on this
relationship) but several theories provide insight
into this issue. We adopt an interdisciplinary
approach and draw from five important theories
taken from stakeholder, precautionary cash, legiti-
macy, signalling and agency theories to provide the
theoretical basis for the hypotheses tested. These
theories, rather than being distinct, are better
viewed as complementary or overlapping theories.
Stakeholder theory provides a potentially useful
theoretical framework for examining the relation-
ship between waste disclosure and corporate cash
holdings. Stakeholder theory suggests that organi-
zations have to take into account the different
perspectives and expectations of a wide group of
stakeholders having an interest in corporate activ-
ities (Laplume, Sonpar, and Litz 2008; Freeman
1984). Stakeholder theory asserts that an organiza-
tion will influence and manage its stakeholders by
adopting a particular posture on environmental
disclosures and adjusting its activities and policies
accordingly (Chan, Watson, and Woodliff 2014;
Liu and Anbumozhi 2009). Such policies may
encompass financial policies such as cash holdings.
Environmental disclosures by a firm are generally
received favourably by investors (Magness 2009)
and may be taken by investors and stakeholders
as a positive sign of the firm managing its exposure
to future regulatory costs (Blacconiere and Patten
1994). An important explanation for the increase in
cash holdings by firms is the precautionary theory

of cash (Opler et al. 1999). According to this the-
ory, firms accumulate precautionary cash in antici-
pation of future costs, adverse cash flow shocks, or
new investment opportunities (Bates, Kahle, and
Stulz 2009; Myers and Majluf 1984). Where the
issue of waste is concerned, firms are motivated to
stockpile precautionary cash as a buffer to meet
their upcoming waste-related costs and invest-
ments and to indicate their proactivity in addres-
sing concerns around environmental issues at
large.
Legitimacy theory is intertwined with stakeholder
theory (Braam et al. 2016) and posits that firms need
to operate in ways that meet the expectations of the
community and stakeholders, which go beyond
merely complying with laws and regulations (Luo
and Tang 2014). In doing so, firms may provide
corporate disclosures such as voluntary environ-
mental disclosures (e.g., waste disclosure) in order
to create an impression that the firm is responsive to
these expectations and to enhance its legitimacy in
the eyes of its stakeholders (Braam et al. 2016;
Campbell, Craven, and Shrives 2003). In recent
times, achieving the impression of being socially
and environmentally responsible has become
a central concern for firms operating in environ-
mentally sensitive sectors (Berrone, Fosfuri, and
Gelabert 2017). The disclosure of sustainability
issues, such as environmental information, can be
regarded as an instrument to shape the perceived
legitimacy of the company which has connections
with signalling theory (Hahn and Kuhnen 2013).
Signalling theory (also known as voluntary disclo-
sure theory) posits that, in situations of asymmetric
distribution of information between the firm and
outsiders such as stakeholders, organizations volun-
tarily disclose information to differentiate them-
selves from other companies (Braam et al. 2016).
When a firm engages in environmentally or socially
proactive activities that would involve the outlay of
resources at present or in the future, it is eager to
reveal this information in the form of disclosure
(Belkaoui and Karpik 1989). The need for financial
resources in the future to maintain such activities
could also motivate firms to hold higher levels of
cash.
2
For example, prior studies on voluntary carbon disclosure, such as Stanny (2013), have revealed that once a firm participates in an initiative such as the Carbon
Disclosure Project voluntarily, it is more likely to participate in the future and is less inclined to report untruthfully.
APPLIED ECONOMICS 5401
High cash holdings may lead to the agency pro-
blem of free cash flow (Jensen 1986). Managers
have a greater preference for cash because it
reduces firm risk and increases their discretion
(Opler et al. 1999). According to agency theory,
higher levels of cash holdings provide managers
with greater discretion to pursue their private ben-
efits (Chen 2008; Myers and Rajan 1998). Agency
theory also suggests that entrenched managers like
to hold cash rather than distribute dividends to
shareholders (Dittmar, Mahrt-Smith, and Servaes
2003). Agency theory-based explanations suggest
that good governance reduces agency conflicts
between managers and shareholders (Florackis
2008; Singh and Davidson 2003).
Hypotheses development
In general, nonfinancial disclosures, such as envir-
onmental disclosures in annual reports, and other
supplementary reports, such as sustainability
reports, are mostly voluntary. Prior evidence sug-
gests that firms that voluntarily disclose environ-
mental information, such as their waste output or
carbon emissions, are usually more proactive in
terms of being environmentally friendly, through
initiatives such as pollution control, usage of
renewable energy, and recycling of waste materials
(Matsumura, Prakash, and Vera-Muñoz 2014).2 In
this regard, a firm that discloses its level of waste
outputs is effectively signalling its ability to mea-
sure its waste, which is a prerequisite for managing
and disposing it as ‘you can’t manage what you
don’t measure’ (Plastic Disclosure Project: www
https://www.plasticdisclosure.org). Firms that
voluntarily disclose information about their impact
on the environment usually perform well in this
regard and are committed to reducing their carbon
footprint in the face of climate change (Luo and
Tang 2014). Prior studies also suggest that more
extensive environmental disclosures by a firm are
generally received favourably by investors
(Magness 2009) and may be interpreted by inves-
tors and stakeholders as a positive sign of the firm
managing its exposure to future regulatory costs
(Blacconiere and Patten 1994).
5402 S. J. BENJAMIN ET AL.
Environmental issues can influence a firm’s finan-
cial position (Surma 1992), including its approach to
cash holdings. A recent study on voluntary social
reporting by Ghaly, Dang, and Stathopoulos (2015)
shows that cash holdings is positively related to
employee welfare. Environmental issues can have
a significant impact on the activities and behaviour
of firms (Saka and Oshika 2014), and the linking of
environmental issues with corporate strategies, such
as financial strategy, is seen as a means to improve
a firm’s alignment with the growing environmental
concerns and expectations of shareholders and sta-
keholders (Buysse and Verbeke 2003). The expecta-
tions of stakeholders around environmental issues
can induce firms to consider their environmental
responsibilities in their resource allocation decisions
(Freeman 2010), and an increased amount of volun-
tary environmental information can potentially
affect the perceptions of a firm’s cash flows and
earnings (Walden and Schwartz 1997). Equally,
waste disclosure may influence the cash holding
policy of a firm for several reasons. Cash-rich firms
can use their cash to finance their future environ-
mental undertakings. Financially healthy organiza-
tions, characterized by the presence of discretionary
financial resources in the form of cash holdings, can
more easily meet the future expectations of owners
and stakeholders (Brammer and Pavelin 2006;
Sharfman et al. 1988), including expectations
around environmental responsibilities. In line with
the precautionary savings motive of cash holdings,
the presence of cash reserves can act as a buffer and
display a firm’s ability to easily meet any future costs
or investment in relation to waste as a result of
possibly heightened environmental responsibility
expectations and legislation. A firm may use its
cash reserves to fund its environmental undertaking
in relation to its waste, such as the acquisition of
recycling equipment and know-how of waste man-
agement practices, or even the employment of
a dedicated workforce for waste management.
A firm’s stock of cash can also signal the possibility
of environmentally proactive behaviour, thereby
influencing and bolstering this perception in the
minds of shareholders and stakeholders. Taken
together, these lines of arguments suggest that the
higher the level of a firm’s waste disclosure, the
higher its cash holdings level. Hence, we propose
and test our first hypothesis as follows:
H1: The level of waste disclosure is positively asso-
ciated with cash holdings
Prior research shows evidence that firm level cor-
porate governance can positively influence environ-
mental disclosures (Jaggi et al. 2018; Mallin,
Michelon, and Raggi 2013; Rankin, Windsor, and
Wahyuni 2011). Since the motivation for voluntarily
measuring and disclosing waste is higher for firms
with strong corporate governance, arguably, a stron-
ger relation between waste disclosure and cash hold-
ings may be observed. In our sample, the level of
waste disclosure is significantly higher in firms with
strong corporate governance, as shown in Table 3
below. At the same time, prior literature indicates
that the level of a firm’s corporate governance can
influence the association between waste disclosure
and cash holdings. If firms possess strong corporate
governance that protects shareholder interests,
shareholders will be willing to accept higher levels
of cash holdings (Chen and Chuang 2009) for future
capital and other investment purposes, including
waste-related investments (Chen 2008). In order to
reap the benefits of being in a financial position to
fund future waste-related undertakings, share-
holders would be willing to accept high level of
cash holdings, so long as their interests are protected
by effective corporate governance. This raises the
question of whether the effect of waste disclosure
on cash holdings is more pronounced in firms with
strong corporate governance, leading to our second
hypothesis:
H2: The positive effect of waste disclosure on cash
holdings is more pronounced in firms with strong
corporate governance.
Although studies on environmental or social dis-
closures typically control for general industry effects
in estimation models, the relationship between waste
disclosure and cash holdings could still vary across
environmentally sensitive industries and less-sensitive
sectors or industry affiliations. Some industries are
evidently more sensitive or more visible from an
environmental perspective and the likelihood of
a firm making voluntary environmental disclosures
is higher in industries that have a greater impact on
the environment (Liu and Anbumozhi 2009;
Brammer and Pavelin 2006). Stakeholder theory
 APPLIED ECONOMICS 5403

holds that firms from environmentally sensitive
industries are inclined to provide greater environ-
mental information to respond to investors’ and sta-
keholders’ greater information needs (Jaggi et al.
2018). Further, legitimacy-based explanations indi-
cate that firms from environmentally sensitive indus-
tries are subject to greater scrutiny from stakeholder
groups, which enhances their environmental respon-
siveness (Brammer and Pavelin 2006). If firms from
environmentally sensitive industries are more
inclined to make environmental disclosures to miti-
gate adverse regulatory pressures and increase their
discretion over investment in relation to waste in the
future, higher levels of precautionary cash holdings
may act as a buffer for these firms. Moreover, since
waste disclosure and a firm’s stock of cash are both
useful in influencing stakeholder perceptions, the
positive effect of waste disclosure on cash holdings is
arguably more pronounced in firms in environmen-
tally sensitive industries. Hence, we propose and test
our third hypothesis:
H3: The positive effect of waste disclosure on firm
level cash holdings is more pronounced for firms in
environmentally sensitive industries.
III. Data and empirical strategy
The financial and waste disclosure data for this paper
come from Standard and Poor’s 500 (S&P 500) firms
and is collected from the Bloomberg Environment,
Social and Governance (ESG) database. Our sample
includes firms in the S&P 500 index for the six-year
period 2010–2015 and excludes financial firms, as
firms from this sector observe a different set of envir-
onmental regulations (Qiu, Shaukat, and Tharyan
2016). The initial sample of this paper was 3,000 firm-
year observations but, after removing some samples
without complete financial, waste disclosure or cor-
porate governance data, the final sample totalled
2,083 firm-year observations.
Measurement and definitions of variables
The outcome variable in this paper is corporate cash
holdings (cash-holdings). It denotes the cash-to-assets
ratio computed as a firm’s cash and short-term
investments to total assets. Figure 1 presents the
histogram depicting the empirical distribution of
our dependent variable. It indicates that the distribu-
tion is typically skewed to the right, suggesting some
outliers may bias our estimates. As a result, we also

Figure 1. Empirical distribution of cash holdings. This figure indicates the histogram showing the empirical distribution of cash
holdings for S&P 500 firms during 2010–2015.
5404 S. J. BENJAMIN ET AL.

run the outlier robust regression test and our results Table 2. Summary statistics.
(untabulated) remain consistent with the results Variables Mean Std.dev. P25 Median P75
cash-holdings 0.134 0.138 0.031 0.087 0.196
shown in Section 4 below. waste-sale 278.721 4006.01 0.000 0.000 0.359
We use two measures of firms’ waste disclosure waste-asset 107.785 147.70 0.000 0.000 0.202
cash-flow 0.074 0.062 0.035 0.074 0.107
levels. Waste disclosure is the amount of waste the acquisition 0.019 0.046 0.000 0.000 0.012
firm produces or discards and is reported in metric dividend-paid 0.811 0.391 1.000 1.000 1.000
size 8.322 3.423 8.332 9.314 10.292
tons of (both hazardous and non-hazardous) nwc 0.278 0.596 −0.013 0.082 0.344
waste.3 We also control for a range of variables market-book 2.024 1.288 1.260 1.710 2.419
capex 0.042 0.044 0.013 0.028 0.058
following previous studies (see Ghaly, Dang, and leverage 0.229 0.175 0.092 0.225 0.344
r&d-exp 0.037 0.106 0.000 0.000 0.031
Stathopoulos 2015; Bates, Kahle, and Stulz 2009). cashflow-vol 0.040 0.012 0.035 0.044 0.048
Definitions of all variables are presented in Table 1. This table provides summary statistics of variables included in our estimation
Table 2 presents the summary statistics of vari- models. P25 and P75 = 25th and 75th percentile of the variables, respec-
tively. Std.dev. denotes standard deviation.
ables. All continuous variables are winsorized at
the 1% and 99% percentiles. In our sample, on
average, firms hold about 13% of assets in cash in firms with strong governance. In Panel B, while
and cash equivalents. The average waste generated the mean of cash-holdings is significantly lower in
per sale is about 225 metric tons per million dollars the environmentally sensitive industries group as
of sales and waste generated per asset is about 87 compared with the less-sensitive industries group,
metric tons per million dollars of assets. the means of our waste disclosure variables (waste-
Table 3 presents a summary of the differences in sale and waste-asset) are significantly higher in firms
variables between the two subsamples: firm-years in from the environmentally sensitive group.
strong and weak governance (Panel A) and envir- To ensure that the variables are not highly cor-
onmentally sensitive and less-sensitive industries related between themselves and to avoid the possi-
(Panel B). In Panel A, while the mean of cash- bility of multicollinearity, Table 4 presents the
holdings is significantly lower in the strong govern- correlation matrix. Results show that multicolli-
ance group as compared with the weak governance nearity is unlikely to be a major concern, as the
group, the means of our waste disclosure variables highest correlation coefficient among the variables
(waste-sale and waste-asset) are significantly higher is 0.533, except between the two waste disclosures

Table 1. Definition of variables.

Expected
Variable Definition and formula sign
cash-holdings The ratio of cash and short-term investments to total assets
waste-sale The ratio of the amount of waste in metric tons to total sales (+)
waste-asset The ratio of the amount of waste in metric tons to total assets (+)
cash-flow The ratio of net earnings to sales (+)
ðNetearningbeforedepreciationandamortizationÞ=
Totalassets
acquisition The ratio of total acquisitions to total assets (-)
dividend-paid An indicator variable equal to one if a company pays a common dividend and zero otherwise (-)
size The natural logarithm of the firm’s book value of assets (+)
nwc The ratio of net working capital to total (-)
ðWorkingcapital  cashandcashequivalentsÞ=
Totalassets
market-book The ratio of market to book value (+)


ðBookvalueoftotalassets þ ThemarketvalueofcommonequityÞ
ðThebookvalueofcommonequityÞ Bookvalueofassets
capex The ratio of a firm’s capital expenditure to total assets (-)
leverage The ratio of a firm’s total debt to total assets (-)
r&d-exp The ratio of research and development (R&D) expenditure to net sales (+)
(This variable is set to zero if a firm does not disclose its R&D expenditure)
cashflow-vol The average of the standard deviation (for the past five years) of firm-level cash flow to total assets in each industry defined by (+)
a two-digit SIC code

3
We have rescaled both waste disclosure ratios in the regressions analyses and denoted them as waste-sale-normal and waste-asset-normal so that they lie
between zero and one. Our results (untabulated) remain consistent when we employed waste-sale and waste-asset instead of waste-sale-normal and waste-
asset-normal in our regression estimates.
 APPLIED ECONOMICS 5405

Table 3. Summary statistics by governance quality and sensitivity of industries.

Panel A) Governance
Weak Governance Strong Governance
Variables Mean Std.dev. Mean Std.dev. t-test for mean difference
cash-holdings 0.156 0.153 0.121 0.126 0.035***
waste-sale 1.620 28.488 460.653 5148.566 −456.033***
waste-asset 1.502 22.097 49.663 1891.104 −176.062***
cash-flow 0.076 0.068 0.074 0.057 0.001
acquisition 0.023 0.052 0.016 0.042 0.007***
dividend-paid 0.688 0.464 0.892 0.311 −0.204***
size 7.671 3.354 8.745 3.411 −1.076***
nwc 0.398 0.681 0.199 0.519 0.198***
market-book 2.239 1.516 1.825 1.067 0.504***
capex 0.037 0.044 0.045 0.043 −0.008***
leverage 0.220 0.193 0.236 0.162 −0.164**
r&d-exp 0.041 0.138 0.034 0.078 0.007
cashflow-vol 0.042 0.011 0.039 0.012 0.003***
Panel b) Sensitivity of Industries
Sensitive industries Less-sensitive industries
Variables Mean Std.dev. Mean Std.dev. t-test for mean difference

cash-holdings 0.095 0.125 0.132 0.139 −0.037***

waste-sale 1146.419 8174.901 7.902 69.618 1138.517***
waste-asset 436.443 3001.257 4.466 38.035 431.977***
cash-flow 0.069 0.070 0.061 0.062 0.008***
acquisition 0.017 0.046 0.017 0.044 −0.000
dividend-paid 0.868 0.339 0.787 0.409 0.080***
size 8.033 3.862 8.323 3.447 −0.290**
nwc 0.150 0.475 0.266 0.647 −0.115***
market-book 1.802 1.212 1.816 1.353 −0.014
capex 0.064 0.062 0.030 0.035 0.035***
leverage 0.195 3.136 0.043 1.115 0.153***
r&d-exp 0.223 0.157 0.217 0.190 0.006
cashflow-vol 0.033 0.010 0.029 0.018 0.003***
This table presents summary statistics of variables by subsamples: strong versus weak governance and environmentally sensitive versus non-sensitive
industries. The table reports the two-sample t-test for the mean difference for the variables between these subsample firms. Std.dev denotes standard
deviation while *, ** and *** denote statistical significance at the 10%, 5% and 1% levels, respectively.

Table 4. Pair-wise correlations between variables.

[1] [2] [3] [4] [5] [6]
cash-holdings [1] 1.000
waste-sale-normal [2] −0.023 1.000
waste-asset-normal [3] −0.021 0.986*** 1.000
cash-flow [4] 0.190*** −0.023 −0.018 1.000
acquisition [5] −0.056** −0.003 −0.005 0.068*** 1.000
dividend-paid [6] −0.272*** 0.024 0.022 −0.283*** −0.136*** 1.000
size [7] −0.252*** 0.040* 0.034* 0.394*** 0.124*** −0.086***
nwc [8] 0.533*** −0.022 −0.015 0.084*** −0.065*** −0.105***
market-book [9] 0.351*** −0.041* −0.029 0.257*** −0.011 −0.196***
capex [10] −0.21.4*** 0.053** 0.056** 0.250*** −0.108*** −0.032*
leverage [11] −0.301*** 0.003 −0.001 −0.069*** 0.133*** −0.040**
r&d-exp [12] 0.445*** −0.012 −0.009 0.003* 0.083*** −0.273***
cashflow-vol [13] 0.399*** −0.031 −0.029 0.155*** 0.111*** 0.150***
[7] [8] [9] [10] [11] [12]
size [7] 1.000
nwc [8] −0.134*** 1.000
market-book [9] −0.107*** 0.314*** 1.000
capex [10] 0.368*** −0.156*** −0.008 1.000
leverage [11] 0.527** −0.199*** −0.124*** 0.191*** 1.000
r&d-exp [12] −0.090*** 0.129*** −0.198*** −0.092*** −0.038** 1.000
cashflow-vol [13] −0.117*** 0.197*** 0.259*** −0.263*** −0.206*** 0.187***
This table presents the correlation coefficients between our variables. *, ** and *** denote statistical significance at the 10%, 5% and 1% levels,
respectively.
5406 S. J. BENJAMIN ET AL.

variables. Next, we turn to the results of the tests of least squares (2SLS), which simultaneously esti-
our multivariate analyses. mates equation (1) above and the reduced form
model of
xy xy
X p xy
Modelling waste disclosure and cash holdings wi;t ¼ α þ δ  Ii;t þ #p  zi;t þ υi;t
p xy
(2)
In order to estimate the impact of firms’ waste xy
disclosure on cash holdings, we specify the follow- where, wi;t denotes the measures of waste disclosure
xy p
ing empirical model: ratios; Ii;t represents the instrumental variables; zi;t
X p xy
denotes the vector of pth control variable as defined
yi;t ¼ α þ βxy  wi;t þ γp  zi;t þ ei;t
p xy
(1) xy
above; υi;t is the reduced form model error term;
and α; δ and # are model parameters. Accounting
where, yi;t denotes the cash holdings of firm i
for the nature of two-stage models, we correct stan-
during year t; wi;t represents our waste disclosure
dard errors through a bootstrap replication.4
ratios where xy indexes waste per sale and asset,
which are to be estimated in separate models;
p
zi;t indicates the vector of pth control variables; α, IV. Results
β and γ are model parameters to be estimated; and
xy
ei;t denotes the error term. All our regressions also Relationship between cash holdings and waste
disclosure
include dummy indicators for industry effects
and year effects. Table 5 presents the estimation results on the effects
Our results are estimated based on the equation of waste disclosure on corporate cash holdings. The
above using the pooled ordinary least squares first regression constitutes results based on waste-
(OLS) with the standard errors clustered at firm sale-normal, while the second regression is based on
level. However, our estimations may still suffer waste-asset-normal. In both regressions, we have
from the endogeneity of waste disclosure ratios included firm-level control variables in addition to
due to idiosyncratic shocks that vary across both our explanatory variables of interest. The coefficient
firms and time periods. Certain factors which are of waste disclosure proxies (waste-sale-normal and
not directly observable may drive both cash hold- waste-asset-normal) with cash-holdings are positive
ings and the waste disclosure of firms. As a result,
we report another set of results using an instru- Table 5. Regression results – waste disclosure and cash
mental variable approach. Our identification of holdings.
instrumental variables is informed by prior studies Dependent variable: cash-holdings
on environmental disclosure and performance and Variables coeff. t-stat. coeff. t-stat.
waste-sale-normal - - 0.071 3.83***
wider sustainability and CSR-related studies (see waste-asset-normal 0.066 3.61***
Al-Hadi et al. 2019; Ghaly, Dang, and cash-flow 0.160 2.05** 0.160 2.06**
acquisition −0.235 −5.12*** −0.235 −5.12***
Stathopoulos 2015). The most common instrumen- dividend-paid −0.024 −1.82* −0.024 −1.82*
tal variables are the one-year lagged values of waste size 0.005 1.14 0.005 1.15
nwc 0.095 7.74*** 0.095 7.74***
disclosure ratios (lag-waste-asset and lag-waste- market-book 0.011 2.16** 0.011 2.16**
sale) and the industry average (defined by a two- capex −0.022 −0.21 −0.022 −0.22
leverage −0.095 −2.62*** −0.095 −2.62***
digit SIC code) waste disclosure ratios (excluding R&D-exp 0.330 3.12*** 0.330 3.12***
the firm in question) (industry-waste-asset and cashflow-vol
year-dummies
1.120
Yes
1.45 1.118
Yes
1.45

industry-waste-sale). These variables are highly industry-dummies Yes Yes

R-squared 0.57 0.57
correlated with our waste disclosure ratios, but it Observations 2,083 2,083
is remote to assume that they are correlated with This table presents our estimation output for the relationship between waste
current firms’ cash holdings, except through cur- disclosure and cash holdings. All regressions include year and industry
fixed effects. t- ratios are computed from robust standard errors. *, ** and
rent waste disclosure effects. Hence, for our instru- *** denote statistical significance at the 10%, 5% and 1% levels,
respectively.
mental variable estimator, we use the two-stage
4
The results are generated through 200 bootstrap replications. Our results remain consistent when we increased the number of replications to 500.
 APPLIED ECONOMICS 5407

and significant at the 1% level, suggesting that higher Corporate governance influence on the relationship
levels of waste disclosure is associated with increased between cash holdings and waste disclosure
levels of cash holdings and supports Hypothesis 1.
Table 7 reports the 2SLS estimation results for the
Table 6 provides the instrumental variable esti-
weak governance and strong governance subsamples
mation (2SLS) results. The one-year lagged values
of firms. The strength of corporate governance is
of the waste disclosure ratio and the industry aver-
proxied by the Corporate Governance Disclosure
age waste disclosure ratio are used as the instru-
Index provided by Bloomberg, where the score
mental variables.5 The 2SLS provides similar
ranges from 0.1 for firms that disclose a minimum
estimation results, as shown in Table 5 above. In
amount of governance data to a maximum of 100 for
other words, the positive and significant associa-
firms that disclose every data point collected by
tion between the waste disclosure ratios and cash
Bloomberg. Firms with corporate governance scores
holdings remains robust even after accounting for
above the median for each year are classified in our
endogeneity and is consistent with our earlier find-
study as ‘Strong Governance’; conversely, firms with
ings. Hence, we accept our H1: The level of waste
corporate governance scores below the median are
disclosure is positively associated with cash holdings.
classified as ‘Weak Governance’.
Our findings have a distant relation to the recent
The results show that in the case of firms with weak
findings of Ghaly, Dang, and Stathopoulos (2015),
corporate governance (Panel A), the relationship
who report that firm commitments to employee
between waste disclosure and cash holdings is not
welfare is positively related to cash holdings.
significant – the coefficients being negative for waste-
sale and waste-asset. However, in firms with strong
Table 6. Instrumental variable estimation results (2SLS).
corporate governance (Panel B), the results show
Dependent variable: cash-holdings a positive and significant relationship (at the 1%
coeff. t-stat. coeff. t-stat. level and 5% level for waste-sale and waste-asset,
waste-sale-normal 0.071 4.15*** respectively) between waste disclosure and cash hold-
waste-asset-normal 0.070 4.10***
cash-flow 0.194 2.87*** 0.194 2.88***
ings. Taken together, these results support H2 that the
acquisition −0.252 −6.27*** −0.252 −6.28*** positive effect of waste disclosure on cash holdings is
dividend-paid −0.010 −1.47 −0.010 −1.47
size 0.003 1.23 0.003 1.23 more pronounced for firms with strong corporate
nwc 0.092 13.68*** 0.092 13.67*** governance practices. Our finding is consistent with
market-book 0.008 2.58** 0.008 2.58***
capex 0.003 0.04 0.002 0.03 the view that strong corporate governance reduces
leverage −0.068 −3.33*** −0.068 −3.33*** agency costs by controlling the entrenched behaviour
R&D-exp 0.553 6.94*** 0.553 6.94***
cashflow-vol 0.233 0.18 0.227 0.15 of managers, ultimately leading to higher corporate
year-dummies Yes Yes cash holdings (Florackis 2008; Singh and Davidson
industry-dummies Yes Yes
R-squared 0.58 0.58 2003). This is also consistent with the view that share-
observations 1,736 1,736
holders are willing to accept higher levels of cash
Dependent variable: cash-holdings
holdings for waste-related purposes if the firm has
coeff. t-stat. coeff. t-stat.
strong corporate governance.
first-stage results on instrumental variables:
lag-waste-sale 0.840 7.74***
lag-waste-asset 0.713 4.03*** Industry impact on the relationship between cash
industry-waste-sale 0.241 2.31**
industry-waste-asset 0.350 2.24** holdings and waste disclosure
tests of instrument validity:
Sargan-Hansen test 0.074 (p = 0.786) 0.150 (p = 0.698) Table 8 reports the 2SLS estimation results for the
This table presents the estimation results of our instrumental variable (2SLS) environmentally sensitive and less-sensitive indus-
specification in which industry-mean waste disclosure ratios and the
lagged values of waste disclosure ratios serve as excluded instruments. tries subsamples. We classify firms as environmen-
The first-stage coefficients on instrumental variables are also reported. The tally sensitive from the perspective of waste to
z- ratios are computed from bootstrapped standard errors. All regressions
include year and industry fixed effects. *, ** and *** denote statistical include firms in agricultural production, forestry,
significance at the 10%, 5% and 1% levels, respectively. metals and mining, construction, manufacturing,
5
We test the validity of our instrumental variables using the Sargan-Hansen test. The test statistic (p-values) confirms that our identifications of instrumental
variables are valid.
5408 S. J. BENJAMIN ET AL.

Table 7. 2SLS estimation results by weak governance versus strong governance.

Dependent variable: cash-holdings
Panel A: weak governance Panel B: strong governance
coeff. t-stat. coeff. t-stat. coeff. t-stat. coeff. t-stat.
waste-sale-normal −0.264 −1.44 0.051 2.58***
waste-asset-normal −0.168 −1.31 0.047 2.38**
cash-flow 0.083 0.92 0.090 0.97 0.336 4.18*** 0.337 4.18***
acquisition −0.259 −3.90*** −0.266 −3.87*** −0.266 −5.88*** −0.266 −5.89***
dividend-paid −0.019 −1.83* −0.021 −1.82* −0.002 −0.15 −0.002 −0.15
size 0.003 0.46 0.002 0.33 0.003 1.21 0.003 1.22
nwc 0.095 9.01*** 0.096 8.91*** 0.090 10.40*** 0.090 10.39***
market-book 0.007 1.27 0.006 1.11 0.006 1.59 0.006 1.58
capex 0.239 2.23** 0.244 2.24** −0.120 −1.56 −0.121 −1.57
leverage −0.054 −1.71* −0.054 −1.70* −0.072 −3.19*** −0.072 −3.19***
R&D-exp 0.573 4.31*** 0.580 4.37*** 0.556 5.71*** 0.556 5.72***
cashflow-vol −0.110 −0.04 0.260 0.09 1.984 1.18 1.983 1.18
year-dummies Yes Yes Yes Yes
industry-dummies Yes Yes Yes Yes
R-squared 0.52 0.65 0.49 0.65
observations 808 808 1,275 1,275
first-stage results on instrumental variables:
lag-waste-sale 0.816 9.14*** 0.839 7.78***
lag-waste-asset 0.914 9.96*** 0.712 4.05***
industry-waste-sale 0.330 2.59*** 0.244 2.33**
industry-waste-asset 0.037 1.52 0.353 2.26**
tests of instrument validity:
Sargan-Hansen 0.991(p = 0.425) 0.462(p = 316) 0.979(p = 0.754) 0.716(p = 788)
This table presents the results of 2SLS for divided subsamples based on corporate governance. The first-stage coefficients on instrumental variables are also
reported. All regressions include year and industry fixed effects. The z-ratios are computed from bootstrapped standard errors. *, ** and *** denote statistical
significance at the 10%, 5% and 1% levels, respectively.

Table 8. 2SLS estimation results by environmentally sensitive industries versus less-sensitive industries.
Dependent variable: cash-holdings
Panel A: Sensitive Panel B: Less-sensitive
ceoff. t-stat. ceoff. t-stat. ceoff. t-stat. ceoff. t-stat.
waste-sale-normal 0.075 3.39*** −0.051 5.33***
waste-asset-normal 0.076 3.81*** −0.011 4.94***
cash-flow 0.182 2.59*** 0.183 2.61*** 0.196 1.87* 0.192 1.83*
acquisition −0.226 −5.34*** −0.227 −5.35*** −0.318 −3.63*** −0.321 −3.65***
dividend-paid −0.007 −0.72 −0.007 −0.72 0.003 0.26 0.002 0.23
size 0.003 1.00 0.003 1.02 0.008 0.16 0.009 0.18
nwc 0.103 13.47*** 0.103 13.45*** 0.071 3.34*** 0.071 4.85***
market-book 0.002 0.06 0.002 0.08 0.017 5.90*** 0.017 3.34***
capex 0.060 0.94 0.059 0.92 −0.009 −0.60 −0.001 −0.41
leverage −0.052 −2.48** −0.053 −2.49** −0.024 −0.68 −0.025 −0.72
R&D-exp 0.521 6.18*** 0.521 6.29*** 0.969 10.47*** 0.968 10.45***
cashflow-vol −0.147 −0.09 −0.145 −0.08 −0.453 −0.17 −0.315 −0.12
year-dummies Yes Yes Yes Yes
industry-dummies Yes Yes Yes Yes
R-squared 0.68 0.66 0.51
observations 1,138 1,138 598 598
first-stage results on instrumental variables:
lag-waste-sale 0.713 11.85*** 0.800 6.71***
lag-waste-asset 0.713 7.59*** 0.785 13.69***
industry-waste-sale 0.340 2.50** 0.249 2.35**
industry-waste-asset 0.351 12.4*** 0.387 6.94**
tests of instrument validity:
Sargan-Hansen 0.567(p = 0.451) 0.837(p = 0.360) 0.273(p = 0.154) 0.357(p = 0.222)
This table presents the results of 2SLS for divided subsamples based on corporate governance score. The first-stage coefficients on instrumental variables are
also reported. All regressions include year and industry fixed effects. The z-ratios are computed from bootstrapped standard errors. *, ** and *** denote
statistical significance at the 10%, 5% and 1% levels, respectively.

oil and gas production, and gas and hydroelectric significant at the 1% level in firms from environmen-
power generation industries; firms in other indus- tally sensitive industries (Panel A). However, the
tries are deemed as less-sensitive. The coefficients of coefficients of waste-sale and waste-asset are negative
waste-sale and waste-asset are positive and and significant at the 1% level in firms from

environmentally less-sensitive industries (Panel B).
The positive results for waste-sale and waste-asset in
firms from environmentally sensitive industries may
be attributed to growing awareness and concerns
around waste, which motivates firms in these indus-
tries to signal their environmentally responsible
behaviour. Overall, the results support H3 and indi-
cate that the positive effect of waste disclosure on
cash holdings is more pronounced for firms in
environmentally sensitive industries. This finding is
aligned with the precautionary motive of cash hold-
ings, as well as stakeholder and legitimacy motives of
voluntary waste disclosures. It suggests that firms
from environmentally sensitive industries are more
inclined to make waste disclosures and hold higher
levels of precautionary cash.
V. Sensitivity analyses
In this section, we further conduct several sensitiv-
ity analyses to assess the robustness of our main
results. First, we test the sensitivity of our results to
the natural logarithm of cash to net assets (another
commonly used proxy of the dependent variable,
i.e., cash holdings) and the results (untabulated
results) remain consistent with the earlier analysis.
Second, we test the sensitivity of our results to
another measure of waste disclosure; i.e., the nat-
ural logarithm of waste disclosure in metric tons
instead of waste-sale or waste-asset in our analyses
and our untabulated results remain unchanged.
Finally, we consider the sensitivity of our results to
the possible presence of any tiny amount of hazar-
dous waste as part of the waste disclosure of firms. In
1986, the Toxics Release Inventory (TRI), which was
established in the U.S. and administered by the
Environmental Protection Agency, required certain
mandatory environmental disclosures. The TRI
required manufacturing facilities to report the total
quantity of more than 300 toxic chemicals released
into the environment or transferred offsite. Indeed,
our waste disclosure variable had comprised both
hazardous and non-hazardous waste, and the former
could include firm disclosures of the TRI toxic che-
micals. In our sample, only 10% or less of firm-year
observations’ disclosure of hazardous waste is non-
zero and the magnitude is minute (untabulated). In
our untabulated results, we find the means of hazar-
dous-waste-to-sales ratio and hazardous-waste-to-
APPLIED ECONOMICS 5409
asset ratio make up less than 0.002% of the means
of waste-sale and waste-asset, respectively, and hence
are unlikely to skew our results as a consequence of
the possible presence of mandatory hazardous waste
disclosure in our waste disclosure variables.
Nevertheless, we remove the presence of any tiny
amounts of hazardous waste in our waste disclosure
variables by excluding hazardous waste from waste-
sale and waste-asset in our analysis, and the untabu-
lated results remain unchanged.
VI. Concluding remarks
The environmental issue of waste is becoming
increasingly important for firms amidst the growing
interest in this issue among stakeholders. This may
induce firms to voluntarily disclose their waste output
and to factor it into their cash holdings policy as
a means to signal their position as environmentally
responsible organizations. In recognition of the grow-
ing importance of waste as a topic, this study exam-
ined the relationship between waste disclosure and
cash holdings – the first to do so. Using a sample of
S&P 500 firms, we document strong evidence that
waste disclosure positively and significantly influences
the cash holding levels of firms. We also find that the
results strongly hold only for firms with strong cor-
porate governance. We provide evidence that the sig-
nificant association between waste disclosure and cash
holdings remains consistent in firms that operate in
environmentally sensitive industries. In addition to
contributing to an emerging line of inquiry into the
environmental and social dimensions that influence
the cash holding levels of firms, we demonstrate the
significance of waste disclosure as a viable and, to date,
under-researched topic of investigation. Our paper
adds further insights into knowledge around corpo-
rate governance and voluntary environmental disclo-
sures by firms and demonstrates the systematic
variation across firms in environmentally sensitive
and less-sensitive industries.
Our results have potential global implications as
the world grapples with the ongoing issue of growing
waste. Our findings offer insights for managers who
are interested in meeting stakeholder concerns
around waste and who are looking to align their
firms’ cash holdings policy accordingly. These find-
ings also offer guidance to policy makers who are
promoting corporate governance practices in
5410 S. J. BENJAMIN ET AL.
organizations. The evidence we provide on the
imporant link between waste disclosure and cash
holdings in firms in enviromentally sensitive indus-
tries has the potential to motivate managers from
such firms to voluntarily disclose information about
their organizations’ waste production and to adjust
their cash holdings levels accordingly.
We recognize that our study has some limitations.
The sample for this study draws from S&P 500 firms,
which are generally large firms, and the results may
therefore not be applicable to smaller and medium-
sized firms. Similarly, the results may be different in
other countries under different governance and envir-
onmental regimes, where voluntary environmental
disclosure practices may differ. Furthermore, this
study only covers six years of S&P 500 data and our
results found may not necessarily apply to other time
periods. Future studies could be conducted across
various time periods and geographical regions in
order to deepen understandings of the linkage
between waste disclosure and cash holdings. In addi-
tion, we do not consider the impact of cash holdings
on contemporaneous waste reduction – and waste
management–related investments. A further avenue
for research that we have identified is examining waste
disclosure in light of other areas of financial policies,
such as capital structure, dividend policy, and bond
pricing. Finally, our exploratory research relies on
archival measures, and it would be useful for future
studies to explore this topic using other approaches,
such as surveys and case studies, so that this growing
body of literature is more holistically informed.
Disclosure statement
No potential conflict of interest was reported by the authors.
ORCID
Samuel Jebaraj Benjamin http://orcid.org/0000-0003-
4514-0608
Dereje Getachew Regasa http://orcid.org/0000-0003-1788-
7640
Nirosha Hewa Wellalage http://orcid.org/0000-0002-3316-
3813
M Srikamalaladevi M Marathamuthu http://orcid.org/
0000-0003-2050-2270
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