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 | |
| Publication status | Published - Jul 2022 |
Keywords
- Business cycle
- Cash holdings
- Financial constraints
- Firm-level political risk
ASJC Scopus subject areas
- Accounting
- General Business,Management and Accounting
- Finance