Research On The Impact Of Economic Policy Uncertainty On Corporates’ Cash Holding Strategies

In recent years,the economic situation at home and abroad has changed dramatically.The economic fluctuation and policy changes have increased the uncertainty of Chinese economic policy,which is bound to have an impact on the financial decisions of enterprises.And corporate cash decision is one of the most important aspects of the financial decisionmaking.As an important asset for enterprises to maintain liquidity,cash can help enterprises alleviate financial difficulties that may be caused by economic policy uncertainties.Therefore,it is of great significance to explore the influence of economic policy uncertainty on corporate cash holding strategy for the operation and development of enterprises.Based on this,this paper uses the Chinese Economic Policy Uncertainty(EPU)index constructed by Baker et al.,to study the impact of economic policy uncertainty on cash holdings,and studies the impact mechanism from corporate debt behavior,executive incentive mechanism and financing constraints,to supplement existing researches.This paper firstly reviews existing literature on cash holding and economic policy uncertainty,expounds relevant theories,and analyzes the status quo of cash holding of listed companies.On this basis,this paper makes a theoretical analysis on the mechanism of the impact of the economic policy uncertainty on corporate cash holdings,and analyzes the transmission mechanism from corporate debt behavior,executive incentive mechanism and financing constraint.Next,this paper selects Chinese listed wholesale and retail enterprises from 2010 to 2020 as research samples to build a fixed effect model to study the impact of economic policy uncertainty on corporate cash holdings,and makes a heterogeneity analysis based on property rights and cash dividend payment policies.In this paper,financial leverage and executive compensation are introduced as moderating variables,and financing constraint index is introduced as intermediary variable to study the impact path.The results show that:(1)economic policy uncertainty has a positive impact on corporate cash holdings,and this phenomenon is more obvious in state-owned enterprises and cash dividend paying enterprises;(2)The increase of corporate debt will reduce the increase of corporate cash holdings caused by the increase of economic policy uncertainty;(3)The increase of executive compensation will reduce the increase of cash holdings caused by the increase of economic policy uncertainty;(4)Financing constraint has a complete mediating effect on the positive impact of economic policy uncertainty on corporate cash holdings.In view of the above conclusions,this paper obtains the following enlightenment:(1)Enterprises should pay attention to the uncertainties of external economic policies and maintain a reasonable level of cash holdings,while the government should maintain the continuity and stability of policies;(2)Enterprises should maintain a reasonable level of financial leverage to maintain sufficient financial flexibility,and the government should also strengthen the supervision of highly leveraged enterprises;(3)Enterprises can alleviate the agency problem through the incentive mechanism of senior executives,and the government needs to strengthen the supervision of enterprise managers;(4)Enterprises should maintain a reasonable level of cash holdings to alleviate financing constraints caused by economic policy uncertainties,while the government needs to unblock financing channels for enterprises.