Uncertainty of uncertainty and firm cash holdings

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dc.contributor.author Goodell, John W.
dc.contributor.author Goyal, Abhinav
dc.contributor.author Urquhart, Andrew
dc.date.accessioned 2021-08-11T07:58:03Z
dc.date.available 2021-08-11T07:58:03Z
dc.date.issued 2021-07-22
dc.identifier.citation Goodell, J. W., Goyal, A. and Urquhart, A. (2021) 'Uncertainty of uncertainty and firm cash holdings', Journal of Financial Stability, 56, 100922 (11pp). doi: 10.1016/j.jfs.2021.100922 en
dc.identifier.volume 56 en
dc.identifier.startpage 1 en
dc.identifier.endpage 11 en
dc.identifier.issn 1572-3089
dc.identifier.uri http://hdl.handle.net/10468/11712
dc.identifier.doi 10.1016/j.jfs.2021.100922 en
dc.description.abstract We examine the impact on firm cash holdings of uncertainty of uncertainty, measured as the ex post volatility of economic policy uncertainty. Using the news-based index developed by Baker et al. (2016) for twenty-two countries, we find that, when there is greater volatility of economic uncertainty, firms hold more cash. Our results are robust to controlling for a host of firm-level and country-level factors. Consistent with Baker et al. (2016), we consider that less economic policy uncertainty is associated with more investment; and so the real-option value of cash is sensitive to the possibility of a future desirability of investment. Therefore, when there is greater expected volatility of uncertainty, measured under rational expectations as the recent ex post volatility of uncertainty, firms will hold more cash. We also find that the volatility of economic policy uncertainty is much more economically significant in determining firm cash holdings than economic policy uncertainty itself. Therefore, our paper not only adds to the literature on uncertainty and cash holdings, but also, importantly, to the limited literature in finance on the impact of uncertainty of uncertainty. en
dc.format.mimetype application/pdf en
dc.language.iso en en
dc.publisher Elsevier B.V. en
dc.rights © 2021, Elsevier B.V. All rights reserved. This manuscript version is made available under the CC BY-NC-ND 4.0 license. en
dc.rights.uri https://creativecommons.org/licenses/by-nc-nd/4.0/ en
dc.subject Cash holdings en
dc.subject Economic policy uncertainty en
dc.subject Real options en
dc.subject Transaction costs en
dc.subject Uncertainty of uncertainty en
dc.title Uncertainty of uncertainty and firm cash holdings en
dc.type Article (peer-reviewed) en
dc.internal.authorcontactother Abhinav Goyal, Cork University Business School, University College Cork, Cork, Ireland. +353-21-490-3000 Email: abhinav.goyal@ucc.ie en
dc.internal.availability Full text available en
dc.check.info Access to this article is restricted until 24 months after publication by request of the publisher. en
dc.check.date 2023-07-22
dc.date.updated 2021-08-11T07:49:32Z
dc.description.version Accepted Version en
dc.internal.rssid 577614016
dc.description.status Peer reviewed en
dc.identifier.journaltitle Journal of Financial Stability en
dc.internal.copyrightchecked Yes
dc.internal.licenseacceptance Yes en
dc.internal.IRISemailaddress abhinav.goyal@ucc.ie en
dc.identifier.articleid 100922 en


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© 2021, Elsevier B.V. All rights reserved. This manuscript version is made available under the CC BY-NC-ND 4.0 license. Except where otherwise noted, this item's license is described as © 2021, Elsevier B.V. All rights reserved. This manuscript version is made available under the CC BY-NC-ND 4.0 license.
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