Economic Policy Uncertainty And Corporate Cash Holdings
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Date
2017
Journal Title
Journal ISSN
Volume Title
Publisher
Te Herenga Waka—Victoria University of Wellington
Abstract
We find that economic policy uncertainty is positively related to cash holdings. This positive relation is attributed to financial constraints that emerge as a new and dominating channel through which policy uncertainty affects corporate financing policies. Neither a delay in investment nor a reduction of the disciplining effect from M&A activities explains this positive relation. Increasing cash holdings during the period of high policy uncertainty contributes to firm excess returns and mitigates the negative impact of policy uncertainty on investment.
Description
Keywords
Policy uncertainty, cash holdings, cash-cash flow sensitivity, financial constraints, investment