Geopolitical risk and cash holdings: evidence from an emerging economy

Manoja Behera and Jitendra Mahakud

Journal of Financial Economic Policy, 2024, vol. 17, issue 1, 132-156

Abstract: Purpose - This study aims to examine the influence of geopolitical risk (GPR) on corporate cash holdings in an emerging market, India. It also investigates whether the effect of GPR on cash holdings varies across financially constrained and unconstrained firms, and across the different sectors. Design/methodology/approach - This study uses the fixed-effect regression model to examine the effect of GPR on the corporate cash holdings of 2090 Indian firms from 2003 to 2021. To correct the potential endogeneity issue and ensure the robustness of the results, this study uses two-stage least squares regression, alternative cash holdings proxies, GPR measures and across the different periods (Global financial crisis and COVID-19). Findings - The paper finds that GPR has a positive impact on the cash holdings of Indian firms. The authors also find that the positive relationship between GPR and cash holdings is consistent for financially constrained and unconstrained firms. Furthermore, the results also show that firms in the construction sector maintain higher cash reserves than other sectors. Originality/value - To the best of the authors’ knowledge, this study is one of the first-ever studies which examines the effect of GPR on corporate cash holding for an emerging economy like India. The use of alternative measures of cash holding, GPR, and estimation methods make this study more robust.

Keywords: Corporate cash holdings; Geopolitical risk; Precautionary motive; Emerging market (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

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: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-02-2024-0056

DOI: 10.1108/JFEP-02-2024-0056

Access Statistics for this article

Journal of Financial Economic Policy is currently edited by Prof Franklin Mixon

More articles in Journal of Financial Economic Policy from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().