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Uncertainty and the value of cash holdings

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  • Im, Hyun Joong
  • Park, Heungju
  • Zhao, Gege

Abstract

We find that a firm facing higher uncertainty has a higher value of cash. This effect is attributed to the increased value of the option to wait and see as well as the aggravated financial constraints and mitigated agency conflicts.

Suggested Citation

  • Im, Hyun Joong & Park, Heungju & Zhao, Gege, 2017. "Uncertainty and the value of cash holdings," Economics Letters, Elsevier, vol. 155(C), pages 43-48.
    • Handle: RePEc:eee:ecolet:v:155:y:2017:i:c:p:43-48
    DOI: 10.1016/j.econlet.2017.03.005
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    References listed on IDEAS

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    Cited by:

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    2. Ji (George) Wu & Jian Zhang & Yiwen Wu & Dongmin Kong, 2020. "When to go abroad: economic policy uncertainty and Chinese firms’ overseas investment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1435-1470, June.
    3. Zhao, Yan & Su, Kun, 2022. "Economic policy uncertainty and corporate financialization: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 82(C).
    4. Domenico Rocco Cambrea & Andrea Calabrò & Maurizio La Rocca & Francesco Paolone, 2022. "The impact of boards of directors’ characteristics on cash holdings in uncertain times," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(1), pages 189-221, March.
    5. Lien, Donald & Sun, Yuchen & Zhang, Chengsi, 2021. "Uncertainty, confidence, and monetary policy in China," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1347-1358.
    6. Al-Thaqeb, Saud Asaad & Algharabali, Barrak Ghanim, 2019. "Economic policy uncertainty: A literature review," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    7. Zhang, Xiang & Zhang, Zongyi & Zhou, Han, 2020. "Oil price uncertainty and cash holdings: Evidence from China," Energy Economics, Elsevier, vol. 87(C).
    8. Dongsheng Zhang & Hongwei Wang & Xiangshan Jin, 2022. "Element Matching and Configuration Path of Corporate Social Responsibility Performance," Sustainability, MDPI, vol. 14(11), pages 1-18, May.
    9. Carmen Cotei & Joseph Farhat & Indu Khurana, 2022. "The impact of policy uncertainty on the M&A exit of startup firms," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(1), pages 99-120, January.
    10. Kim, Hyeong Joon & Han, Seung Hun & Mun, Seongjae, 2022. "Analyzing the effects of terrorist attacks on the value of cash holdings," Finance Research Letters, Elsevier, vol. 45(C).
    11. Saud Asaad Al‐Thaqeb & Barrak Ghanim Algharabali & Khaled Tareq Alabdulghafour, 2022. "The pandemic and economic policy uncertainty," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 2784-2794, July.
    12. Yao, Wenyun & Sang, Yadi & Shen, Yongjian & Han, Pengfei, 2020. "Performance sensitivity of non-executive compensation in China: The role of economic policy uncertainty," Economic Modelling, Elsevier, vol. 93(C), pages 310-320.
    13. Zhang, Cheng & Yang, Chunhong & Liu, Cheng, 2021. "Economic policy uncertainty and corporate risk-taking: Loss aversion or opportunity expectations," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
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    15. Goodell, John W. & Goyal, Abhinav & Urquhart, Andrew, 2021. "Uncertainty of uncertainty and firm cash holdings," Journal of Financial Stability, Elsevier, vol. 56(C).
    16. Efstathios Magerakis & Ahsan Habib, 2022. "Environmental uncertainty and corporate cash holdings: The moderating role of CEO ability," International Review of Finance, International Review of Finance Ltd., vol. 22(3), pages 402-432, September.
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    More about this item

    Keywords

    Uncertainty; Cash holdings; Real options; Financial constraints; Agency costs;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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