Does Partisan Conflict Impact the Cash Holdings of Firms? A Sign Restrictions Approach

53 Pages Posted: 19 Oct 2016 Last revised: 20 Oct 2016

See all articles by William Hankins

William Hankins

Jacksonville State University, Alabama

Chak Hung Jack Cheng

University of South Carolina Upstate

Ching-Wai (Jeremy) Chiu

Bank of England

Anna-Leigh Stone

Samford University

Multiple version iconThere are 2 versions of this paper

Date Written: October 19, 2016

Abstract

This paper explores how US partisan conflict impacts the cash management decisions of US firms. Using a sign restrictions approach to identify structural shocks to partisan conflict, we find that an exogenous 10% rise in the Partisan Conflict Index above trend is associated with a 0.4 percentage point increase in average cash-to-total assets above trend. These baseline results hold for both the mean and median ratio of cash-to-total assets for all firms in our sample, across the total assets distribution, as well as for different classifications of firms. Additionally, we conduct a series of robustness checks, including a firm-level regression analysis, all of which uphold these results. Our findings reinforce the signaling effect that political dysfunction can have on corporate managers.

Keywords: Partisan Conflict, Cash Holdings, Economic Policy Uncertainty, VAR, Sign Restriction

JEL Classification: G30, G32, E32

Suggested Citation

Hankins, William and Cheng, Chak Hung Jack and Chiu, Ching-Wai (Jeremy) and Stone, Anna-Leigh, Does Partisan Conflict Impact the Cash Holdings of Firms? A Sign Restrictions Approach (October 19, 2016). Available at SSRN: https://ssrn.com/abstract=2854477 or http://dx.doi.org/10.2139/ssrn.2854477

William Hankins (Contact Author)

Jacksonville State University, Alabama ( email )

700 Pelham Rd N
Jacksonville, AL 36265
United States

Chak Hung Jack Cheng

University of South Carolina Upstate ( email )

Spartanburg, SC 29306
United States
8645035510 (Phone)

Ching-Wai (Jeremy) Chiu

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Anna-Leigh Stone

Samford University ( email )

800 Lakeshore Drive
Birmingham, AL 35229
United States

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