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International trade friction and firm cash holdings

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  • Pan, Liang
  • Lei, Lili

Abstract

In 2017, the United States launched a "301″ investigation, imposed a series of additional tariffs on China, which led to the US-China trade war. In this paper, we investigate the impact of the trade war on firms' cash holdings in the context of China. Our results indicate that the trade frictions have significantly increased cash holdings of manufacturing firms. This effect arises mainly through the channel if increased trade policy uncertainty. Our findings offer direct evidence and guidance for both firm strategy and policymakers in the important trade friction.

Suggested Citation

  • Pan, Liang & Lei, Lili, 2023. "International trade friction and firm cash holdings," Finance Research Letters, Elsevier, vol. 55(PB).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003483
    DOI: 10.1016/j.frl.2023.103976
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    References listed on IDEAS

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    1. Zhang, Ke & Wang, Jenny Jing & Zhang, Xujun, 2023. "Trade war and corporate social responsibility: Evidence from China," Finance Research Letters, Elsevier, vol. 55(PA).
    2. Merton H. Miller & Daniel Orr, 1966. "A Model of the Demand for Money by Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(3), pages 413-435.
    3. Thomas W. Bates & Kathleen M. Kahle & René M. Stulz, 2009. "Why Do U.S. Firms Hold So Much More Cash than They Used To?," Journal of Finance, American Finance Association, vol. 64(5), pages 1985-2021, October.
    4. Yi Huang & Chen Lin & Sibo Liu & Heiwai Tang, 2018. "Trade Linkages and Firm Value: Evidence from the 2018 US-China “Trade War”," IHEID Working Papers 11-2018, Economics Section, The Graduate Institute of International Studies.
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