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Corporate financial asset holdings under economic policy uncertainty: Precautionary saving or speculating?

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  • Huang, Jialin
  • Luo, Yu
  • Peng, Yuchao

Abstract

Non-financial corporations invest heavily in financial assets nowadays, raising questions about the traditional boundaries of non-financial firms. We investigate how economic policy uncertainty affects firms’ holdings of non-currency financial assets and portfolios in China. We find that economic policy uncertainty has a negative effect on firms’ non-currency financial asset allocation, especially for less financially constrained firms. This result implies that other than precautionary saving, speculation is the underlying motive that drives firms to increase their non-currency financial asset holdings. Furthermore, economic policy uncertainty has a negative but weaker impact on financial asset holdings for firms in industries/regions with intensive competition.

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  • Huang, Jialin & Luo, Yu & Peng, Yuchao, 2021. "Corporate financial asset holdings under economic policy uncertainty: Precautionary saving or speculating?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1359-1378.
    • Handle: RePEc:eee:reveco:v:76:y:2021:i:c:p:1359-1378
    DOI: 10.1016/j.iref.2019.11.018
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    More about this item

    Keywords

    Economic policy uncertainty; Financial asset; Financial constraint; Speculation; Precautionary saving;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • 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
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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