Does the reform of China's mineral royalty policies exert economic pressure on mining companies?

• Published in: The extractive industries and society Vol. 15; p. 101325
• Main Authors: Zhou, Zhifang, Liu, Jinhao, Zhang, Hua
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.09.2023
• Subjects: Cash flow risk; Mineral resource royalty policy; Mining enterprises; Resource regulation; Cash flow risk; Mining enterprises; Resource regulation; Mineral resource royalty policy
• ISSN: 2214-790X
• DOI: 10.1016/j.exis.2023.101325

•The reform of China's mineral resource royalty policy significantly reduces the cash flow risk of mining-related enterprises.•Ownership nature, enterprise size, mineral resource endowment, and change of officials (personnel turnover) can have a heterogeneity effect on the effect of the policy.•The cash holding level is an effective way to alleviate the risk of corporate cash flow. The Reform Plan of the Mineral Resource Royalty Policy is a resource regulation law enacted by the government of China to safeguard the rights and interests of the owners of mineral resources at the national level. However, the influence of this policy on mining-related enterprises has been the subject of broad controversy. Based on data regarding the six-year period from 2015 to 2020, we take Chinese A-share listed companies as our research object and empirically test the impact of this policy on the cash flow risk of mining-related enterprises using a differences-in-differences model (DID). The results show that in 2017, the reform of China's mineral resource royalty policy began to have an impact; namely, it significantly reduced the cash flow risk of mining-related enterprises. In terms of heterogeneity, we find that factors at both the macro- and microlevels, such as ownership nature, enterprise size, mineral resource endowment, and changes of officials, can have heterogeneous effects on the microlevel effect of the policy, and the level of cash holdings is a factor that can effectively alleviate the risk of corporate cash flow. To some extent, our research responds to the ongoing debate on this topic and provides empirical support and policy suggestions for improving the mineral resource royalty policy in China and other regions.