Country risk, global uncertainty, and firms’ cash holdings: Do the role of law, culture, and financial market development matter?

Abstract

To the extent of our knowledge, there is a gap in scrutinizing the impacts of the country's risk and global uncertainty on Asian firms' cash holdings. Therefore, this work aims to shed light on this gap by choosing 989 listed non-financial Asian firms and performing both the static (fixed-effects) and dynamic (Difference-GMM and System‐GMM) panel data methods between 2008 and 2020. The findings reveal that an increase in a country's risk and global uncertainty stimulates firms to stockpile more cash though the impact of country risk is more pronounced. Likewise, the results underscore that among the country risk factors, firms have more precautionary motives to stockpile more cash with increases in financial and political instability while they hold more cash with rises in economic stability. Remarkably, the results emphasize that the impacts of country risk and global uncertainty on cash holdings are more prominent in environments characterized by common-law legal origin, high uncertainty avoidance cultures, and less financial market development. Moreover, the results reveal that firm-specific factors including growth opportunity, leverage, profitability, dividend, and size have an important role in shaping Asian firms' cash holdings policy.