Corporate Cash and Political Uncertainty
59 Pages Posted: 3 Jan 2018 Last revised: 26 May 2020
Date Written: May 22, 2020
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: Suggested Citation