Corporate integrity and corporate cash reserves:insights from textual analysis

Abstract

We examine how corporate integrity influences firms’ liquidity policies. Using a large U.S. sample and a text-based measure of corporate integrity developed by Li et al. (2021) from earnings call transcripts, we analyze whether an ethical corporate culture affects cash-holding behavior. The results show that firms with higher integrity maintain significantly larger cash reserves, consistent with the safety-net hypothesis that integrity-oriented managers adopt more cautious and risk-averse financial policies. The findings remain robust across alternative specifications, including propensity score matching, entropy balancing, and instrumental-variable analyses. Moreover, the effect is stronger among highly leveraged firms, suggesting that integrity reinforces financial prudence when external risk is greater. Overall, the evidence highlights corporate integrity as an important and stable driver of liquidity management, stressing its role in promoting financial resilience and sound risk management.</p