Drivers of cash holdings value: does economic policy uncertainty matter?

Mohamed Arouri, Hayet Ben Haj Hamida (), Issam Mejri () and Srdjan Redzepagic ()
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Hayet Ben Haj Hamida: Aix Marseille Univ, CNRS, AMSE, Marseille, France. CEDIMES-France ECSTRA : LR 1 - IHEC of Carthage
Issam Mejri: IPAG Business School, Nice, France
Srdjan Redzepagic: Université Côté d'Azur, GREDEG, France

Economics Bulletin, 2023, vol. 43, issue 1, 550 - 563

Abstract: This paper investigates whether economic policy uncertainty (EPU) affects the way investors value firms' cash holdings. It contributes to two ongoing parallel groups of research studies: studies on the financial impacts of economic policy uncertainty and studies on the drivers of corporate cash holdings. We test for linear and nonlinear causal relationships based on data on firms from S&P500 over the period 2000-2017. Our findings show that while cash holdings increase the firm's market value, economic policy uncertainty reduces it, and its impact is persistent. Moreover, it seems that investors price more cash holdings during periods of high uncertainty and that the cash-EPU-firms value relationship is rather nonlinear.

Keywords: Cash holdings; Economic policy uncertainty; Nonlinear models (search for similar items in EconPapers)
JEL-codes: F3 G1 (search for similar items in EconPapers)
Date: 2023-03-30
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