Unified government and the value of cash holdings

Hyun Joong Im, Jiyeon Kim and Dean Ryu

Finance Research Letters, 2023, vol. 58, issue PC

Abstract: This study examines the impact of a government regime on cash holdings’ valuation, finding that the marginal value of an extra dollar of cash is 24–26 cents greater when the government is unified. As the degree of political conflicts and economic uncertainty are lower in this regime, greater cash reserves allow firms to alleviate under-investment problems and capture government-driven investment opportunities, leading to an increased marginal value of cash holdings. Taken together, our findings highlight that cash value hinges on the political regime in which firms operate.

Keywords: Unified government; Divided government; Value of cash holdings; Investment opportunities; Under-investment reduction (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323009182

DOI: 10.1016/j.frl.2023.104546

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