Firms' cash reserve, financial constraint, and geopolitical risk

Chien-Chiang Lee () and Chih-Wei Wang

Pacific-Basin Finance Journal, 2021, vol. 65, issue C

Abstract: This study investigates whether geopolitical risks influence Chinese firms' cash holdings. We find that firms tend to hoard more cash as a precautionary measure when faced with geopolitical risk. Moreover, firms that are financially constrained maintain cash reserves as buffer against geopolitical risk. Finally, firms in manufacturing-related industries tend to save more cash and protect themselves from risk spillover as China's manufacturing sector has slowed down with the current China–United States trade war. Our research notes that policymakers and investors can pay more attention to the effect of geopolitical risk on enterprises' cash reserves.

Keywords: Geopolitical risk; Cash holdings; Precautionary motive; China–United States trade war (search for similar items in EconPapers)
JEL-codes: G30 G38 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (48)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:65:y:2021:i:c:s0927538x20306922

DOI: 10.1016/j.pacfin.2020.101480

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