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Drivers of cash holdings value: does economic policy uncertainty matter?

Author

Listed:
  • Mohamed Arouri

    (Université Côté d'Azur, GRM, France)

  • Hayet Ben Haj Hamida

    (Aix Marseille Univ, CNRS, AMSE, Marseille, France. CEDIMES-France ECSTRA : LR 1 - IHEC of Carthage)

  • Issam Mejri

    (IPAG Business School, Nice, France)

  • Srdjan Redzepagic

    (Université Côté d'Azur, GREDEG, France)

Abstract

This paper investigates whether economic policy uncertainty (EPU) affects the way investors value firms' cash holdings. It contributes to two ongoing parallel groups of research studies: studies on the financial impacts of economic policy uncertainty and studies on the drivers of corporate cash holdings. We test for linear and nonlinear causal relationships based on data on firms from S&P500 over the period 2000-2017. Our findings show that while cash holdings increase the firm's market value, economic policy uncertainty reduces it, and its impact is persistent. Moreover, it seems that investors price more cash holdings during periods of high uncertainty and that the cash-EPU-firms value relationship is rather nonlinear.

Suggested Citation

  • Mohamed Arouri & Hayet Ben Haj Hamida & Issam Mejri & Srdjan Redzepagic, 2023. "Drivers of cash holdings value: does economic policy uncertainty matter?," Economics Bulletin, AccessEcon, vol. 43(1), pages 550-563.
    • Handle: RePEc:ebl:ecbull:eb-22-00235
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Cash holdings; Economic policy uncertainty; Nonlinear models;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • F3 - International Economics - - International Finance

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