Corporate Cash and Political Uncertainty

59 Pages Posted: 3 Jan 2018 Last revised: 26 May 2020

See all articles by Candace Jens

Candace Jens

Tulane University - A.B. Freeman School of Business

T. Beau Page

Tulane University - Finance & Economics

Date Written: May 22, 2020

Abstract

How does political uncertainty affect firms’ cash saving behavior? We show theoretically that firms increase cash balances before and draw down these balances after high-uncertainty periods. Using gubernatorial election timing to measure uncertainty, we find firms save an extra quarter’s worth of cash before elections. We show heterogeneity in how firms build up pre-election cash balances. Firms with ongoing payout decrease payout. Firms without consistent payout are more likely to adjust the number and magnitude of pre-election equity issuances. Differences between firms’ financing and payout policies mean that no one source of cash explains firms’ saving behavior before high-uncertainty periods.

Keywords: corporate saving, cash, political uncertainty, gubernatorial elections, economic policy uncertainty

JEL Classification: D72, G31, E21

Suggested Citation

Jens, Candace and Page, Beau, Corporate Cash and Political Uncertainty (May 22, 2020). Available at SSRN: https://ssrn.com/abstract=3094415 or http://dx.doi.org/10.2139/ssrn.3094415

Candace Jens (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Beau Page

Tulane University - Finance & Economics ( email )

A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
United States

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