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The impact of economic policy uncertainty and inflation risk on corporate cash holdings

Author

Listed:
  • Bijoy Chandra Das

    (Leeds University Business School, Leeds University)

  • Fakhrul Hasan

    (Northumbria University)

  • Soma Rani Sutradhar

    (Leeds University Business School, Leeds University)

Abstract

This paper analyses the joint effects of Economic Policy Uncertainty (EPU) and inflation risk on the Corporate Cash Holdings (CCH) of US firms from 2011 to 2021. The baseline results suggest that EPU and inflation risk positively impact CCH. Moreover, we find the same results between inflation risk and CCH. However, EPU and CCH are negatively associated. Additionally, construction (finance) firms hold higher (lower) cash at the time of EPU and inflationary risk. We also find that firms hold higher (lower) cash during Democrat (Republican) presidential terms. The two-step system Generalized Method of Moments approach used to control the potential endogeneity issues indicates the same results and supports the baseline findings.

Suggested Citation

  • Bijoy Chandra Das & Fakhrul Hasan & Soma Rani Sutradhar, 2024. "The impact of economic policy uncertainty and inflation risk on corporate cash holdings," Review of Quantitative Finance and Accounting, Springer, vol. 62(3), pages 865-887, April.
    • Handle: RePEc:kap:rqfnac:v:62:y:2024:i:3:d:10.1007_s11156-023-01224-6
    DOI: 10.1007/s11156-023-01224-6
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    More about this item

    Keywords

    Economic Policy Uncertainty; Inflation; Corporate Cash Holdings; Democrat; Republican;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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