Does firm-level political risk affect cash holdings?

Shehub Bin Hasan; Md Samsul Alam; Sudharshan Reddy Paramati; Md Shahidul Islam

doi:10.1007/s11156-022-01049-9

Does firm-level political risk affect cash holdings?

Shehub Bin Hasan, Md Samsul Alam (Lead / Corresponding author), Sudharshan Reddy Paramati, Md Shahidul Islam

University of Dundee School of Business

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

Abstract

We investigate whether firm-level political risk affects corporate cash holdings. Taking a sample of 5424 US firms with 129,750 firm-quarter observations from 2002Q1 to 2021Q3, we find that cash holdings is higher for firms with greater exposure to firm-level political risk. The positive relationship between firm political risk and cash holdings is consistent for financial constraint and non-constraint firms, high and low growth firms, pro-cyclical and counter-cyclical and competitive industries. Further, our findings are consistent to alternative measures of firm-level political risk and cash holdings. In addition, our findings remain robust with different endogeneity tests: a natural experiment, an instrumental variable approach, and a propensity score matching. Overall, we present novel evidence on the determinants of corporate cash holdings.

Original language	English
Pages (from-to)	311-337
Number of pages	27
Journal	Review of Quantitative Finance and Accounting
Volume	59
Early online date	2 Mar 2022
DOIs	https://doi.org/10.1007/s11156-022-01049-9
Publication status	Published - Jul 2022

Keywords

Business cycle
Cash holdings
Financial constraints
Firm-level political risk

Access to Document

10.1007/s11156-022-01049-9

Cite this

@article{092779fa5d934da5a1f3e5e6f2e8b77a,

title = "Does firm-level political risk affect cash holdings?",

abstract = "We investigate whether firm-level political risk affects corporate cash holdings. Taking a sample of 5424 US firms with 129,750 firm-quarter observations from 2002Q1 to 2021Q3, we find that cash holdings is higher for firms with greater exposure to firm-level political risk. The positive relationship between firm political risk and cash holdings is consistent for financial constraint and non-constraint firms, high and low growth firms, pro-cyclical and counter-cyclical and competitive industries. Further, our findings are consistent to alternative measures of firm-level political risk and cash holdings. In addition, our findings remain robust with different endogeneity tests: a natural experiment, an instrumental variable approach, and a propensity score matching. Overall, we present novel evidence on the determinants of corporate cash holdings.",

keywords = "Business cycle, Cash holdings, Financial constraints, Firm-level political risk",

author = "{Bin Hasan}, Shehub and Alam, {Md Samsul} and Paramati, {Sudharshan Reddy} and Islam, {Md Shahidul}",

note = "{\textcopyright} The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2022.",

year = "2022",

month = jul,

doi = "10.1007/s11156-022-01049-9",

language = "English",

volume = "59",

pages = "311--337",

journal = "Review of Quantitative Finance and Accounting",