Economic policy uncertainty and cash holdings: Evidence from BRIC countries

The importance of global economic policy uncertainty in predicting gold futures market volatility: A GARCH‐MIDAS approach

“…Bloom () discussed how recently GEPU index had spiked in three waves and highlighted how it was both a cause and effect of recessions. Demir and Ersan (in press) showed that GEPU have a significant positive impact on cash holding decisions of firms in BRIC countries. Besides, Chen et al (), Baker et al (), and Li () have shown that national EPU can exert contractionary effects on stock markets.…”

Economic uncertainty, ownership structure and small and medium enterprises performance

“…In terms of economic policy uncertainty, scholars have put a great deal of effort into investigating the linkage between economic uncertainty and firm‐level variables in recent years such as investment (Gulen & Ion, 2015; Kang et al, 2014; Liu & Zhang, 2019), cash holding (Demir & Ersan, 2017; Phan, Nguyen, Nguyen, & Hegde, 2019), stock return (Chiang, 2019; Phan, Sharma, & Tran, 2018), dividend policy (Farooq & Ahmed, 2019), the cost of capital (Drobetz, El Ghoul, Guedhami, & Janzen, 2018; Kim, 2019), acquisition (Nguyen & Phan, 2017) and earnings management (Yung & Root, 2019). In addition, few studies examine the direct impact of economic uncertainty on firm performance; Madanoglu and Ozdemir (2019) is one of the first studies demonstrating the negative effect of economic policy uncertainty on firm performance, in the hotel industry, in particular, which is derived from reducing investments or difficulty in access to credit under high uncertainty.…”

“…Kim and Kung (2016) document that firms experience a significantly larger reduction in investment due to using less re‐deployable assets to react with uncertainty. Based on the precautionary saving theory, SMEs are likely to dramatically increase the amount of cash as an uncertainty hedging instrument instead of spending for both capital investments and hiring plans (Demir & Ersan, 2017; Phan et al, 2019). However, the dark side of holding more cash is that firms use fewer assets for profitable activities, which directly affects firm performance.…”

“…Uncertain times affect both firms and consumers; in particular, while firms tend to delay all irreversible and high‐cost strategies such as hiring new employees and making investments, consumers increase their saving accounts by cutting down on spending (Čižmešija, Lolić, & Sorić, 2017). When economic uncertainty in a country increases, firms tend to hold more cash to protect against uncertainty (Demir & Ersan, 2017). Holding more cash will lead to increased costs since fewer of the firms' assets are used in profitable operations; eventually their performance will reduce.…”

“…In contrast to these studies, which mostly depend on single‐country financial data to analyse this effect, we expand to a broader range of countries with 11 developing countries and 14 developed countries, which allows us to analyse differences between two groups since differences in country characteristics also contribute to the impact of the economic uncertainty level on firm decisions (Julio & Yook, 2012). In addition, while some related studies mainly focus on the effect of economic policy uncertainty on enterprise activities, such as firm investment (Gulen & Ion, 2015; Kang, Lee, & Ratti, 2014; Wang et al, 2014), investor information asymmetry (Nagar, Schoenfeld, & Wellman, 2019) and cash holdings (Demir & Ersan, 2017), we directly evaluate the effect of economic uncertainty on firm performance, on which empirical evidence remains scarce in both developed and developing contexts. Madanoglu and Ozdemir (2019) also investigate the economic policy uncertainty's response to firm performance; these authors, however, employ some specific indicators just for applying in cases of the hotel industry, while our study is popularly used to measure firm performance in many countries and industries.…”