Uncertainty of uncertainty and firm cash holdings

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dc.contributor.authorGoodell, John W.
dc.contributor.authorGoyal, Abhinav
dc.contributor.authorUrquhart, Andrew
dc.date.accessioned2021-08-11T07:58:03Z
dc.date.available2021-08-11T07:58:03Z
dc.date.issued2021-07-22
dc.date.updated2021-08-11T07:49:32Z
dc.description.abstractWe 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.description.statusPeer revieweden
dc.description.versionAccepted Versionen
dc.format.mimetypeapplication/pdfen
dc.identifier.articleid100922en
dc.identifier.citationGoodell, 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.2021.100922en
dc.identifier.doi10.1016/j.jfs.2021.100922en
dc.identifier.endpage11en
dc.identifier.issn1572-3089
dc.identifier.journaltitleJournal of Financial Stabilityen
dc.identifier.startpage1en
dc.identifier.urihttps://hdl.handle.net/10468/11712
dc.identifier.volume56en
dc.language.isoenen
dc.publisherElsevier 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.urihttps://creativecommons.org/licenses/by-nc-nd/4.0/en
dc.subjectCash holdingsen
dc.subjectEconomic policy uncertaintyen
dc.subjectReal optionsen
dc.subjectTransaction costsen
dc.subjectUncertainty of uncertaintyen
dc.titleUncertainty of uncertainty and firm cash holdingsen
dc.typeArticle (peer-reviewed)en
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