Epidemics, local institutional quality, and corporate cash holdings

Xiaodan Li, Zikui Pan, Kung-Cheng Ho and Yu Bo

International Review of Economics & Finance, 2024, vol. 92, issue C, 193-210

Abstract: The increase in corporate cash holdings, particularly in the U.S., has garnered significant attention from academia, the popular press, and policymakers. While most existing studies explain this trend using endogenous microeconomic measures, there is limited empirical evidence of what may have caused corporate cash holdings to decrease. From a macroeconomic perspective, this study provides the first examination of the effects of exogenous health epidemics and local institutional quality on corporate cash holdings, using a large and unique international dataset of 380,966 companies from 39 economies. The analysis reveals a decrease in corporate cash holdings during epidemics, particularly in countries with higher local institutional quality, as indicated by their financial regulatory and governance capacity. This study conducts a robustness test, and the findings underscore the importance of local institutional quality, particularly during epidemics.

Keywords: Epidemics; Institutional quality; Cash holding (search for similar items in EconPapers)
JEL-codes: F39 G14 G33 M41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:92:y:2024:i:c:p:193-210

DOI: 10.1016/j.iref.2024.02.019

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