Economic policy uncertainty, social capital, and corporate cash holdings

ABSTRACT

This study examines the moderating effect of social capital on the association between economic policy uncertainty (EPU) and cash holdings. Using a sample of US-listed firms from 1990 to 2018, social capital is found to have a positive moderating effect on the association between EPU and cash holdings. Our finding is robust even if we use alternative measures of cash, EPU, and social capital. Based on these outcomes, we suggest that firms located in a county with a high level of social capital endure high EPU by raising cash easily.

KEYWORDS:

• Economic policy uncertainty
• social capital
• cash holdings
• systematic channel

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ RGF social capital index is compiled for each county only for 1990, 1997, 2005, 2009, and 2014. Therefore, we fill in missing data from 1990 to 1996 using the social capital index in 1990, 1997 to 2004 using the social capital index in 1997, 2005 to 2008 using the social capital index in 2005, 2009 to 2013 using the social capital index in 2009, and 2014 to 2018 using the social capital index in 2014.