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Firms' cash reserve, financial constraint, and geopolitical risk

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  • Lee, Chien-Chiang
  • Wang, Chih-Wei

Abstract

This study investigates whether geopolitical risks influence Chinese firms' cash holdings. We find that firms tend to hoard more cash as a precautionary measure when faced with geopolitical risk. Moreover, firms that are financially constrained maintain cash reserves as buffer against geopolitical risk. Finally, firms in manufacturing-related industries tend to save more cash and protect themselves from risk spillover as China's manufacturing sector has slowed down with the current China–United States trade war. Our research notes that policymakers and investors can pay more attention to the effect of geopolitical risk on enterprises' cash reserves.

Suggested Citation

  • Lee, Chien-Chiang & Wang, Chih-Wei, 2021. "Firms' cash reserve, financial constraint, and geopolitical risk," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:pacfin:v:65:y:2021:i:c:s0927538x20306922
    DOI: 10.1016/j.pacfin.2020.101480
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    More about this item

    Keywords

    Geopolitical risk; Cash holdings; Precautionary motive; China–United States trade war;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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