Corporate Cash and Political Uncertainty

85 Pages Posted: 3 Jan 2018 Last revised: 21 Sep 2021

See all articles by Candace Jens

Candace Jens

Tulane University - A.B. Freeman School of Business

T. Beau Page

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Date Written: August 27, 2021

Abstract

How does political uncertainty affect firms' saving? Using a dynamic difference-in-difference framework and gubernatorial elections as a source of uncertainty, we show that firms save an extra quarter's worth of cash before elections. Changes to saving dwarf changes to investment around elections and are likely driven by higher cost of capital. No one source of cash explains firms' aggregate pre-election saving. Firms that can cheaply raise funds by decreasing payout do so, or adjust leverage ratios. Firms that rely on external equity markets to raise cash adjust the timing and magnitude of issuances to avoid higher financing costs around elections.

Keywords: corporate saving, cash, political uncertainty, gubernatorial elections, economic policy uncertainty

JEL Classification: D72, G31, E21

Suggested Citation

Jens, Candace and Page, Beau, Corporate Cash and Political Uncertainty (August 27, 2021). Available at SSRN: https://ssrn.com/abstract=3094415 or http://dx.doi.org/10.2139/ssrn.3094415

Candace Jens (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Beau Page

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

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