Corporate Cash and Political Uncertainty

67 Pages Posted: 3 Jan 2018 Last revised: 11 Dec 2018

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: August 24, 2018

Abstract

How does political uncertainty affect fi rms' cash saving behavior? We show theoretically that predictable uncertainty periods cause firms to build up cash balances in advance of the uncertain event, then draw down the balances afterwards. Unpredictable uncertainty periods do not cause a cash buildup, but do produce a cash draw down once the uncertainty resolves. Consistent with these predictions, we find higher fi rm cash balances before elections but not before spikes in the EPU index, which is a measure of less predictable political uncertainty, and that drawdowns in cash following high EPU periods are smaller than post-election drawdowns.

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 (August 24, 2018). 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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