Does partisan conflict impact the cash holdings of firms? A sign restrictions approach

William Hankins, Chak Hung Jack Cheng (), Ching-Wai (Jeremy) Chiu and Anna-Leigh Stone ()
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Anna-Leigh Stone: Samford University

No 638, Bank of England working papers from Bank of England

Abstract: This paper explores how US partisan conflict impacts the cash management decisions of US firms. Using a sign restrictions approach to identify structural shocks to partisan conflict, we find that an exogenous 10% rise in the Partisan Conflict Index above trend is associated with a 0.4 percentage point increase in average cash-to-total assets above trend. These baseline results hold for both the mean and median ratio of cash-to-total assets for all firms in our sample, across the total assets distribution, as well as for different classifications of firms. Additionally, we conduct a series of robustness checks, including a firm-level regression analysis, all of which uphold these results. Our findings reinforce the signalling effect that political dysfunction can have on corporate managers.

Keywords: Partisan conflict; cash holdings; economic policy uncertainty; VAR; sign restrictions (search for similar items in EconPapers)
JEL-codes: E32 G30 G32 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2016-12-29
New Economics Papers: this item is included in nep-cfn, nep-mac, nep-pol and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0638

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