The impact of economic policy uncertainty and inflation risk on corporate cash holdings

Bijoy Chandra Das (), Fakhrul Hasan () and Soma Rani Sutradhar ()
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Bijoy Chandra Das: Leeds University Business School, Leeds University
Fakhrul Hasan: Northumbria University
Soma Rani Sutradhar: Leeds University Business School, Leeds University

Review of Quantitative Finance and Accounting, 2024, vol. 62, issue 3, No 1, 865-887

Abstract: Abstract This paper analyses the joint effects of Economic Policy Uncertainty (EPU) and inflation risk on the Corporate Cash Holdings (CCH) of US firms from 2011 to 2021. The baseline results suggest that EPU and inflation risk positively impact CCH. Moreover, we find the same results between inflation risk and CCH. However, EPU and CCH are negatively associated. Additionally, construction (finance) firms hold higher (lower) cash at the time of EPU and inflationary risk. We also find that firms hold higher (lower) cash during Democrat (Republican) presidential terms. The two-step system Generalized Method of Moments approach used to control the potential endogeneity issues indicates the same results and supports the baseline findings.

Keywords: Economic Policy Uncertainty; Inflation; Corporate Cash Holdings; Democrat; Republican (search for similar items in EconPapers)
JEL-codes: C83 E52 E58 G32 G38 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11156-023-01224-6

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