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

Bijoy Chandra Das; Fakhrul Hasan; Soma Rani Sutradhar

doi:10.1007/s11156-023-01224-6

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

Bijoy Chandra Das, Fakhrul Hasan^*, Soma Rani Sutradhar

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

27 Citations (Scopus)

35 Downloads (Pure)

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.

Original language	English
Pages (from-to)	865-887
Number of pages	23
Journal	Review of Quantitative Finance and Accounting
Volume	62
Issue number	3
Early online date	7 Nov 2023
DOIs	https://doi.org/10.1007/s11156-023-01224-6
Publication status	Published - 1 Apr 2024

Keywords

Corporate Cash Holdings
Democrat
Economic Policy Uncertainty
Inflation
Republican

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Cite this

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AB - 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.

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KW - Inflation

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

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Keywords

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