Can Economic Policy Uncertainty Affect Companies' Cash Holding Behavior?

Abstract

Abstract:

Cash holding is a key step that companies take to manage risks and economic policy uncertainty is one of the basic risks that they have to face. Assuming that cash holding is intended to guard against risks, this paper studies the impact of economic policy uncertainty on companies' cash holding behavior. We find that economic policy uncertainty is an important factor affecting companies' cash holding behavior. When economic policy uncertainty is high, companies will increase the level and the speed of cash holding. The heterogeneity in financing ability shows a significant impact on the response of companies' cash holding behavior to economic policy uncertainty. The cash holding behaviors of non state-owned enterprises is more vulnerable to economic policy uncertainty. The bank-company relationship and political connection relieves the impact of economic policy uncertainty on companies' cash holding behavior.

Key words: economic policy uncertainty, cash holding, bank-company relationship

Zhang Guangli, Qian Xianhang, Xu Jin. Can Economic Policy Uncertainty Affect Companies' Cash Holding Behavior?[J]. , 2017, 29(9): 15-27.

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