Navigating through economic policy uncertainty: the role of corporate cash holdings

Huu Nhan Duong, Justin Hung Nguyen, My Nguyen, S. Ghon Rhee

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26 Citations (Scopus)

Abstract

We find that U.S. corporations increase their cash holdings in response to higher economic policy uncertainty. The increase in cash holdings is not attributed to a reduction in firm investments. This increase is more pronounced for financially constrained firms or those with larger exposure to policy uncertainty. Holding more cash in the presence of policy uncertainty alleviates the negative impact of policy uncertainty on capital investment and firm innovation outputs. Our findings demonstrate that cash holdings represent an important channel in mitigating the negative effect of policy uncertainty on firm real economic activities.

Original languageEnglish
Article number101607
Number of pages22
JournalJournal of Corporate Finance
Volume62
DOIs
Publication statusPublished - Jun 2020

Keywords

  • Cash holdings
  • Corporate innovation
  • Financial constraints
  • Investment
  • Policy uncertainty

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