Economic policy uncertainty and cash holdings - Evidence from Japan
Hang, Truong Thanh
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Employing Japan’s economic policy uncertainty index constructed by Arbatli, Davis, Ito, Miake, and Saito (2019), I investigate the impact of economic policy uncertainty on cash holdings in Japan over the period 1989-2018. I find that economic policy uncertainty exerts a positive effect on cash holdings in Japan. Moreover, this effect lasts for two years after controlling for firm characteristics, macroeconomic variables, and economic policy uncertainty indexes of the U.S., China, and Korea. Further analyses indicate that industry competitiveness shapes the positive effect of policy uncertainty on cash holdings in Japan and cash held by firms during periods of heightened policy uncertainty are utilized to invest in the next two years. This study complements the existing literature by first examining the dynamic relationship between policy uncertainty and cash holdings in Japan.