Government Economic Policy Uncertainty, Corporate Cash Holdings, and the Value of Cash

Posted: 6 Nov 2017

See all articles by Hieu V. Phan

Hieu V. Phan

University of Massachusetts Lowell

Nam Nguyen

Department of Finance, Université du Québec à Montréal

Hien Thu Nguyen

Vietnam National University - Ho Chi Minh City (VNU-HCM)

Shantaram P. Hegde

University of Connecticut - School of Business

Date Written: October 2017

Abstract

This research examines the relationships between government economic policy uncertainty and corporate cash holdings and the value of cash. We find robust evidence that policy uncertainty is positively related to corporate cash holdings due to firms’ precautionary motives and investment delays. Policy uncertainty adversely affects the value of cash to shareholders of firms with high growth opportunities because it motivates these firms to hold cash for precautionary purpose while discouraging them from deploying cash for investment. In contrast, policy uncertainty has a positive effect on the value of cash to shareholders of firms with low growth opportunities because it enables these firms to exploit profitable acquisition opportunities while discouraging them from overinvesting in capital expenditures.

Keywords: Policy Uncertainty; Cash Holdings; Value of Cash

JEL Classification: G18, G32, G38

Suggested Citation

Phan, Hieu V. and Nguyen, Nam and Nguyen, Hien Thu and Hegde, Shantaram P., Government Economic Policy Uncertainty, Corporate Cash Holdings, and the Value of Cash (October 2017). University of Connecticut School of Business Research Paper No. 17-10. Available at SSRN: https://ssrn.com/abstract=3064785

Hieu V. Phan

University of Massachusetts Lowell ( email )

72 University Avenue
Lowell, MA 01854
United States

Nam Nguyen

Department of Finance, Université du Québec à Montréal ( email )

PB 8888 Station DownTown
Succursale Centre Ville
Montreal, Quebec H3C3P8
Canada

Hien Thu Nguyen

Vietnam National University - Ho Chi Minh City (VNU-HCM) ( email )

6 Quarter, Linh Trung Ward
Thu Duc District
Ho Chi Minh City
Vietnam

Shantaram P. Hegde (Contact Author)

University of Connecticut - School of Business ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-5135 (Phone)

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