Economics at your fingertips  

Partisan conflict, policy uncertainty and aggregate corporate cash holdings

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

Journal of Macroeconomics, 2018, vol. 58, issue C, 78-90

Abstract: This paper distinguishes political uncertainty from policy uncertainty shocks and uncovers new empirical facts about how each impacts the aggregate cash holdings of US firms. Our baseline structural vector autoregression model shows that an exogenous one standard deviation shock to political and economic policy uncertainty is followed by 1 and 1.8% increase in aggregate corporate cash-to-total assets after five and eight quarters, respectively. The baseline result also shows that policy uncertainty shocks tend to raise financial market volatility while political uncertainty shocks tend to lower financial market volatility. Moreover, we find evidence that political uncertainty exerts asymmetric effects on aggregate corporate cash holdings, with a shock tending to raise cash holdings under normal financial conditions and lower cash holdings under tight financial conditions. Our main results are robust against a wide range of shock identification schemes as well as against parametric and non-parametric model estimations.

Keywords: Partisan conflict; Cash holdings; Economic policy uncertainty; VAR; Sign restrictions; Local projections (search for similar items in EconPapers)
JEL-codes: G30 G32 E32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-11-07
Handle: RePEc:eee:jmacro:v:58:y:2018:i:c:p:78-90