Economic policy uncertainty, institutional environments, and corporate cash holdings

Sadok El Ghoul, Omrane Guedhami, Sattar Mansi and Wang, He (Helen)

Research in International Business and Finance, 2023, vol. 65, issue C

Abstract: We investigate the effect of economic policy uncertainty (EPU) on corporate cash holdings using a large sample of international firms. EPU intensifies concerns of investors on managerial self-dealing and political extraction. Consequently, the potential cost of cash holdings (i.e., expropriation) outweighs its benefit (i.e., precautionary motives), and the optimal amount of cash holdings decreases. We find supportive evidence that firms hold less cash when EPU is high. We further show that the market discounts excess cash holdings under high policy uncertainty, but this negative effect is mitigated by stronger investor protection, better freedom of press, and better government quality.

Keywords: Policy uncertainty; Cash holdings; Investor protection; Press freedom; Government quality (search for similar items in EconPapers)
JEL-codes: D80 E66 G18 G32 G34 G35 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923000132

DOI: 10.1016/j.ribaf.2023.101887

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