Strategic Cash Portfolio Management in the Face of Policy Uncertainty: Evidence from U.S. Firms

We document that during periods of heightened policy uncertainty, firms rebalance their cash portfolios away from riskier marketable securities and toward safer, more liquid assets. Our findings are robust to instrumental variable analyses, alternative model specifications, and varying definitions of policy uncertainty. The effect is stronger among financially constrained firms, firms with greater external financing needs, firms in highly competitive product markets, and highly intangible firms - consistent with precautionary motives. However, we also find evidence consistent with an investment-delay channel, whereby heightened policy uncertainty induces firms to postpone investment, creating temporary excess liquidity that may be allocated to marketable securities. By uncovering this nuanced behavior, our findings provide new insights into corporate financial decision-making under uncertainty and how firms manage liquidity and risk.