Cash holdings and cash flows: Do oil price uncertainty and geopolitical risk matter?

Abstract

This research mainly focuses on investigating the role of the interactions between cash flows, oil price uncertainty, and geopolitical risk on corporate cash holdings across 42 countries. We also investigate whether such interactions may differ across firm and country characteristics. The main results show that the interactions between cash flows interacting with oil price uncertainty and geopolitical risk have a positive correlation with corporate cash holdings. Additionally, the nexus between the interactions and corporate cash holdings is more prominent for financially constrained firms, firms located in highly competitive industries, or Asia and Europe. The main policy implication based on our findings is that policymakers should exercise caution and take into account the effect of the uncertainties of oil price movement and geopolitical risk when designing policies related to corporate decision makings.