Corporate Decision-Making in the Presence of Political Uncertainty: The Case of Corporate Cash Holdings
Finance, Economics & Accounting
Using a quarterly panel of U.S. corporations over the period 1985 – 2014 we show that corporate managers respond to political uncertainty and economic policy uncertainty shocks in different ways. We proxy for political uncertainty using the Partisan Conflict Index and employ a prevalent empirical macroeconomic methodology to construct structural shocks that are orthogonal to shocks captured by the Economic Policy Uncertainty Index. Following a political uncertainty shock, corporations increase cash but do not adjust investment. Alternatively, following an economic policy uncertainty shock, firms appear to draw on cash and reduce capital spending to increase R&D spending.
Hankins, W. B., Stone, A.-L., Cheng, C. H. J., & Chiu, C.-W. (2020, May 1). Corporate decision making in the presence of political uncertainty: The case of corporate cash holdings. The Financial Review, 55(2), 307. https://doi.org/10.1111/fire.12205
Business Administration, Management, and Operations Commons, Business Analytics Commons, Finance and Financial Management Commons
The Financial Review, 55(2), 2020, 307