Does firm-level political risk affect cash holdings?Bin Hasan, S., Alam, M. S., Paramati, S. R. and Islam, M. S. (2022) Does firm-level political risk affect cash holdings? Review of Quantitative Finance and Accounting, 59 (1). pp. 311-337. ISSN 1573-7179
It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing. To link to this item DOI: 10.1007/s11156-022-01049-9 Abstract/SummaryWe investigate whether firm-level political risk affects corporate cash holdings. Taking a sample of 5,424 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.
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