Policy Uncertainty and Cash Dynamics

Tut, Daniel

doi:10.2139/ssrn.3403775

Cited by 3 publications

(8 citation statements)

References 65 publications

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“…Previous research reports that policy-related uncertainty induces financing frictions, which increase the cost of external financing and exacerbate firms' financial constraints (Phan et al, 2019;Tut, 2022). Facing costly external financing, firms tend to increase cash reserves to buffer against negative shock.…”

Section: Uncertainty Financial Constraints and Cash Holdingsmentioning

confidence: 99%

“…Consistent with this prediction, Lee and Wang (2021) find that firms that are financially constrained maintain cash reserves as buffer against GPR. Tut (2022) provides evidence that firms that are financially constrained tend to increase cash holdings significantly following policy uncertainty shocks. Thus, we hypothesize the following.…”

Section: Uncertainty Financial Constraints and Cash Holdingsmentioning

confidence: 99%

“…We also examine the effects of EPU and GPR on the speed of adjustment (SOA) of cash toward target. To the extent that uncertainty shocks induce financing frictions, firms incur AGJSR increased adjustment costs, which invariably affect the frequency with which they rebalance cash holdings (Tut, 2022).…”

Section: Introductionmentioning

confidence: 99%

“…Prior studies emphasize two broad theories for explaining corporate liquidity decision making opposite predictions on of the impact of EPU and GPR on cash holdings: the precautionary motive and the agency problems (Phan et al, 2019;Javadi et al, 2021;Tut, 2022). The precautionary motive is concerned with unpredicted cash needs.…”

Section: Introductionmentioning

confidence: 99%

“…According to Javadi et al (2021), policy uncertainty can exacerbate information asymmetry, financing frictions and increase cost of external capital. Therefore, firms hold more liquidity to hedge against very costly adverse shocks in cash flows (Phan et al, 2019;Tut, 2022). Baum, Chakraborty, Han, and Liu (2012) conclude that during times of heightened uncertainties, managers would display a more conservative behavior by increasing the liquidity level of the firm.…”

Section: Introductionmentioning

confidence: 99%

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Economic policy uncertainty, geopolitical risk and cash holdings: evidence from Saudi Arabia

Guizani

Talbi²,

Abdalkrim³

2023

AGJSR

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PurposeThis study aims to investigate the influence of economic policy uncertainty (EPU) and geopolitical risk (GPR) on corporate cash holding level and speed of adjustment (SOA) in one of the most important emerging markets in the Middle East and North Africa, Saudi Arabia. It also investigates whether Shariah-compliance as well as financial constraints affect the relationship between both EPU and GPR and corporate cash holdings.Design/methodology/approachThe study employs GMM regression considering a sample of 140 nonfinancial firms drawn from the Saudi stock market over the period 2002 to 2019.FindingsThe authors find evidence in support of the precautionary motive hypothesis. Facing costly external financing induced by economic policy-related uncertainty and geopolitical tension, Saudi firms tend to accumulate cash as a buffer against negative shocks to their cash flows. The results also show that the positive impact of EPU and GPR on the level of cash holding is less pronounced in Shariah-compliant firms, whereas it is more pronounced in more financially constrained firms. Evidence also reveals that the estimated adjustment coefficients show that Saudi firms adjust more quickly toward their target cash ratio in periods of high economic instability and geopolitical risks.Practical implicationsThis study has important implications for managers, policymakers and regulators. For managers, the study is an important reference to understand and design cash management policies by considering factors measured at the country level. More specifically, managers should pay more attention to periods of heightened uncertainties and geopolitical tensions in which the availability of funds is reduced. For policymakers and regulators, this study may be useful in assessing the effect of economic instability on firm’s cash holding decision. Therefore, in an effort to increase the supply of external financing available to firms, policymakers may devise investment friendly environment by controlling country-specific factors.Originality/valueThis paper shows how EPU and GPR as institutional environment factors affect cash holding decision in an oil-rich country.

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Section: Uncertainty Financial Constraints and Cash Holdingsmentioning

confidence: 99%

Section: Uncertainty Financial Constraints and Cash Holdingsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Economic policy uncertainty, geopolitical risk and cash holdings: evidence from Saudi Arabia

Guizani

Talbi²,

Abdalkrim³

2023

AGJSR

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Capital Reallocation and Firm-Level Productivity Under Political Uncertainty

Tut

2021

SSRN Journal

Self Cite

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Does policy uncertainty affect productivity? Policy uncertainty creates delays as firms await new information about prices, costs and other market conditions before committing resources.Such delays can have real consequences on firms' productivity and corporate decisions. First, we find that economic policy uncertainty has a negative impact on firm-level productivity. Second, debt magnifies the adverse effects of policy uncertainty on productivity, but access to external financing during periods of significant policy uncertainty shocks has a positive impact on firmlevel productivity. Third, Policy uncertainty is positively related to cash holdings but this effect is mostly driven by highly productive firms and by firms with higher levels of irreversible investments since these firms face higher opportunity costs in future states. The three findings are robust to various specifications and provide an affirmative answer to the opening question.

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Impact of financial constraints and financial distress on cash holdings

Wrońska-Bukalska

Maziarczyk

2023

International Journal of Management and Economics

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The aim of the study is to examine the impact of financial constraints and financial distress on cash holdings, both in normal and crisis times. We collected the 4,406 firm-year observations of companies listed on the Warsaw Stock Exchange (WSE). Our research shows that companies maintain higher cash holdings during a crisis than in a normal period. However, in contrast to our expectations, companies with financial difficulties (constraints and distress) have lower cash holdings both in normal and crisis times. The originality of our research lies in realizing that different sources of difficulties might overlap at the same time (external with internal). We also analyze how cash holdings react to a combined impact of difficulties of different natures (external and internal). We believe that cash holdings have recently increased their meaning as we face the situation of constant and increasing uncertainty: still ongoing COVID-19 crisis prolonged with Russian aggression on Ukraine and outburst of inflation.

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Policy Uncertainty and Cash Dynamics

Cited by 3 publications

References 65 publications

Economic policy uncertainty, geopolitical risk and cash holdings: evidence from Saudi Arabia

Economic policy uncertainty, geopolitical risk and cash holdings: evidence from Saudi Arabia

Capital Reallocation and Firm-Level Productivity Under Political Uncertainty

Impact of financial constraints and financial distress on cash holdings

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