Does firm-level political risk affect cash holdings?

Shehub Bin Hasan (), Md Samsul Alam (), Sudharshan Reddy Paramati and Md Shahidul Islam ()
Additional contact information
Shehub Bin Hasan: University of Warwick
Md Samsul Alam: De Montfort University
Md Shahidul Islam: University of Suffolk

Review of Quantitative Finance and Accounting, 2022, vol. 59, issue 1, No 10, 337 pages

Abstract: Abstract We investigate whether firm-level political risk affects corporate cash holdings. Taking a sample of 5424 US firms with 129,750 firm-quarter observations from 2002Q1 to 2021Q3, we find that cash holdings is higher for firms with greater exposure to firm-level political risk. The positive relationship between firm political risk and cash holdings is consistent for financial constraint and non-constraint firms, high and low growth firms, pro-cyclical and counter-cyclical and competitive industries. Further, our findings are consistent to alternative measures of firm-level political risk and cash holdings. In addition, our findings remain robust with different endogeneity tests: a natural experiment, an instrumental variable approach, and a propensity score matching. Overall, we present novel evidence on the determinants of corporate cash holdings.

Keywords: Firm-level political risk; Cash holdings; Financial constraints; Business cycle (search for similar items in EconPapers)
JEL-codes: G30 G32 H32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/s11156-022-01049-9

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