Navigating through Economic Policy Uncertainty: The Role of Corporate Cash Holdings

76 Pages Posted: 30 Jan 2017 Last revised: 30 Mar 2020

See all articles by Huu Nhan Duong

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Justin Hung Nguyen

Victoria University of Wellington

My Nguyen

RMIT- School of Economics, Finance and Marketing

S. Ghon Rhee

University of Hawaii at Manoa - Shidler College of Business; University of Hawaii at Manoa - Department of Financial Economics and Institutions

Date Written: February 1, 2018

Abstract

We find that U.S. corporations increase their cash holdings in response to higher economic policy uncertainty. The increase in cash holdings is not attributed to a reduction in firm investments. This increase is more pronounced for financially constrained firms or those with larger exposure to policy uncertainty. Holding more cash in the presence of policy uncertainty alleviates the negative impact of policy uncertainty on capital investment and firm innovation outputs. Our findings demonstrate that cash holdings represent an important channel in mitigating the negative effect of policy uncertainty on firm real economic activities.

Keywords: Policy uncertainty; cash holdings; financial constraints; corporate innovation; investment.

JEL Classification: G18; G31; G32

Suggested Citation

Duong, Huu Nhan and Nguyen, Justin Hung and Nguyen, My and Rhee, S. Ghon, Navigating through Economic Policy Uncertainty: The Role of Corporate Cash Holdings (February 1, 2018). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2907519 or http://dx.doi.org/10.2139/ssrn.2907519

Huu Nhan Duong

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Justin Hung Nguyen (Contact Author)

Victoria University of Wellington ( email )

23 Lambton Quay
Pipitea
Wellington, 6011
New Zealand

My Nguyen

RMIT- School of Economics, Finance and Marketing ( email )

445 Swanston Street
Melbourne, Victoria 3001
Australia
+61 3 9925 5450 (Phone)

S. Ghon Rhee

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way
C-304, FEI/CBA
Honolulu, HI 96822
United States

University of Hawaii at Manoa - Department of Financial Economics and Institutions ( email )

United States

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