Effects of Economic Policy Uncertainty on Cash of Brazilian Companies
DOI:
https://doi.org/10.17524/repec.v16i1.2966Keywords:
Cash Policy, Financial Slack, Economic Policy UncertaintyAbstract
Objective: investigate the effects of economic policy uncertainty on the cash and financial slack of public companies listed in the Brazilian stock market.
Method: using as uncertainty measures the Economic Policy Uncertainty Index (EPU) and the Economic Uncertainty Indicator – Brazil (IIEBr) in addition to cash measures such as cash and equivalents and financial slack, this study used estimates by GMM-Systemic, whose application can alleviate the problem of endogeneity, with quarterly data from 152 companies with stocks on B3.
Results: in general, evidence was found that economic policy uncertainty is positively related to the cash level of companies in the sample, implying that companies retain more cash when uncertainty increases. Additional analyzes suggest that economic policy uncertainty also influences firms' future cash. The results also show a more pronounced result when using IIEBr compared to EPU, consistent with different ways of calculating the metrics.
Contribuições: the study has implications for the literature by demonstrating the role of companies' cash reserves in the Brazilian market in mitigating the adverse effect of economic policy uncertainty. In addition, it explains to companies some possible factors triggered by uncertainty, which could help in their liquidity policy, aiming at financial balance.
References
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Gulen, H., & Ion, M. (2016). Policy uncertainty and corporate investment. The Review of Financial Studies, 29(3), 523-564. doi:10.1093/rfs/hhv050
Gupta, C. P., & Bedi, P. (2020). Corporate cash holdings and promoter ownership. Emerging Markets Review, 44, 100718. doi:10.1016/j.ememar.2020.100718
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Jensen, M. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review, 76, 323-329.
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Julio, B., & Yook, Y. (2012). Political uncertainty and corporate investment cycles. The Journal of Finance, 67(1), 45-83. doi:10.1111/j.1540-6261.2011.01707.x
Kaya, O. (2018). Economic policy uncertainty in Europe: Detrimental to capital markets and bank lending. EU Monitor. Deutsche Bank Research. Recuperado de http://www.dbresearch.com/.
Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. London: MacMillan.
Li, J. (2021). Economic policy uncertainty, contracting frictions and imports sourcing decisions. Economics Letters, 200, 109772. doi:10.1016/j.econlet.2021.109772
Li, X. (2019). Economic policy uncertainty and corporate cash policy: International evidence. Journal of Accounting and Public Policy, 38(6), 106694. doi:10.1016/j.jaccpubpol.2019.106694
Myers, S C. (1984). The Capital Structure Puzzle. Journal of Finance, 39(3), 574-592. doi:10.3386/w1393
Myers, S. C. & Majluf, N. S. (1984). Corporate fnancing and investment decisions when frms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. doi:10.1016/0304-405X(84)90023-0
Nguyen, N. H., & Phan, H. V. (2017). Policy uncertainty and mergers and acquisitions. Journal of Financial and Quantitative Analysis, 52(2), 613-644. doi:10.1017/S0022109017000175
Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica: Journal of the Econometric Society, 1417-1426. doi:10.2307/1911408
Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3-46. doi:10.1016/S0304-405X(99)00003-3
Pástor, L., & Veronesi, P. (2013). Political uncertainty and risk premia. Journal of Financial Economics, 110(3), 520-545. doi:10.1016/j.jfineco.2013.08.007
Phan, H. V., Nguyen, N. H., Nguyen, H. T., & Hegde, S. (2019). Policy uncertainty and firm cash holdings. Journal of Business Research, 95, 71–82. doi:10.1016/j.jbusres.2018.10.001
Picolo, J. D., Dal Magro, C. B., Silva, T. P., & Bernardo, L. (2018). The influence of the financial slack on the economical performance of Brazilian and Chilean companies. Cuadernos de Economía, 41(115), 19-30. doi:10.1016/j.cesjef.2016.12.002
Quinteiro, L. G. L., Medeiros, O. R., & Niyama, J. K. (2020). Modelo de Cinco-Fatores de Fama e French e o risco de incerteza econômica no mercado acionário brasileiro. GCG: Revista de Globalización, Competitividad y Gobernabilidad, 14(1), 116-134. doi:10.3232/GCG.2020.V14.N1.06
Schwarz, L. A. D., & Dalmácio, F. Z. (2020). The relationship between economic policy uncertainty and corporate leverage: Evidence from Brazil. Finance Research Letters, 101676. doi:10.1016/j.frl.2020.101676
Schymura, L. G. (2019). O que explica as diferenças na trajetória da incerteza no mundo e no Brasil? Revista Conjuntura Econômica, 73(12), 6-9. Recuperado de https://bibliotecadigital.fgv.br/ojs/index.php/rce/article/view/81367
Shaikh, I. A., O'Brien, J. P., & Peters, L. (2018). Inside directors and the underinvestment of financial slack towards R&D-intensity in high-technology firms. Journal of Business Research, 82, 192-201. doi:10.1016/j.jbusres.2017.09.014
Solarin, S. A., & Gil-Alana, L. A. (2021). The persistence of economic policy uncertainty: Evidence of long range dependence. Physica A: Statistical Mechanics and its Applications, 568, 125698. doi:10.1016/j.physa.2020.125698
Wiengarten, F., Fan, D., Lo, C. K., & Pagell, M. (2017). The differing impacts of operational and financial slack on occupational safety in varying market conditions. Journal of Operations Management, 52, 30-45. doi:10.1016/j.jom.2016.12.001
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29-51. doi:10.1016/0304-4076(94)01642-D
Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring Economic Policy Uncertainty. The Quarterly Journal of Economics, 131(4), 1593–1636. doi:10.1093/qje/qjw024
Barboza, R. D. M., & Zilberman, E. (2018). Os efeitos da incerteza sobre a atividade econômica no Brasil. Revista Brasileira de Economia, 72(2), 144-160. doi:10.5935/0034-7140.20180007
Barros, L. A., Bergmann, D. R., Castro, F. H., & Silveira, A. D. M. D. (2020). Endogeneidade em regressões com dados em painel: Um guia metodológico para pesquisa em finanças corporativas. Revista Brasileira de Gestão de Negócios, 22(SPE), 437-461. doi:10.7819/rbgn.v22i0.4059
Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do US firms hold so much more cash than they used to? The Journal of Finance, 64(5), 1985-2021. doi:10.1111/j.1540-6261.2009.01492.x
Bloom, N. (2009). The impact of uncertainty shocks. Econometrica, 77(3), 623-685. doi:10.3982/ECTA6248
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143. doi:10.1016/S0304-4076(98)00009-8
Bonaime, A., Gulen, H., & Ion, M. (2018). Does policy uncertainty affect mergers and acquisitions? Journal of Financial Economics, 129(3), 531-558. doi:10.1016/j.jfineco.2018.05.007
Cheng, M., & Geng, H. (2021). Do local firms employ political activities to respond to political uncertainty? Journal of Asian Economics, 23(101270). doi:10.1016/j.asieco.2020.101270
Cruz, A. F., Kimura, H., & Sobreiro, V. A. (2019). What do we know about corporate cash holdings? A systematic analysis. Journal of Corporate Accounting & Finance, 30(1), 77-143. doi:10.1002/jcaf.22368
Demir, E., & Ersan, O. (2017). Economic policy uncertainty and cash holdings: Evidence from BRIC countries. Emerging Markets Review, 33, 189–200. doi:10.1016/j.ememar.2017.08.001
Duong, H. N., Nguyen, J. H., Nguyen, M., & Rhee, S. G. (2020). Navigating through economic policy uncertainty: The role of corporate cash holdings. Journal of Corporate Finance, 62, 101607. doi:10.1016/j.jcorpfin.2020.101607
Feng, X., Lo, Y. L., & Chan, K. C. (2019). Impact of economic policy uncertainty on cash holdings: firm-level evidence from an emerging market. Asia-Pacific Journal of Accounting & Economics, 1-23. doi:10.1080/16081625.2019.1694954
Ferreira, P. C., Vieira, R. M. B., Silva, F. B., & de Oliveira, I. C. (2019). Measuring Brazilian Economic Uncertainty. Journal of Business Cycle Research, 15(1), 25-40. doi:10.1007/s41549-018-00034-3
Fleuriet, M. (2021). Saldo de tesouraria. Modelo Fleuriet ©. Recuperado de https://www.modelo-fleuriet.com/conceitos-basico/saldo-de-tesouraria/
Gippel, J., Smith, T., & Zhu, Y. (2015). Endogeneity in accounting and finance research: natural experiments as a state‐of‐the‐art solution. Abacus, 51(2), 143-168. doi:10.1111/abac.12048
Gulen, H., & Ion, M. (2016). Policy uncertainty and corporate investment. The Review of Financial Studies, 29(3), 523-564. doi:10.1093/rfs/hhv050
Gupta, C. P., & Bedi, P. (2020). Corporate cash holdings and promoter ownership. Emerging Markets Review, 44, 100718. doi:10.1016/j.ememar.2020.100718
Hu, Y., Li, Y., & Zeng, J. (2019). Stock liquidity and corporate cash holdings. Finance Research Letters, 28, 416-422. doi:10.1016/j.frl.2018.06.018
Jensen, M. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review, 76, 323-329.
Jensen, M. C. & Meckling, W. H. (1976). Teory of the frm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. doi:10.1016/0304-405X(76)90026-X
Julio, B., & Yook, Y. (2012). Political uncertainty and corporate investment cycles. The Journal of Finance, 67(1), 45-83. doi:10.1111/j.1540-6261.2011.01707.x
Kaya, O. (2018). Economic policy uncertainty in Europe: Detrimental to capital markets and bank lending. EU Monitor. Deutsche Bank Research. Recuperado de http://www.dbresearch.com/.
Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. London: MacMillan.
Li, J. (2021). Economic policy uncertainty, contracting frictions and imports sourcing decisions. Economics Letters, 200, 109772. doi:10.1016/j.econlet.2021.109772
Li, X. (2019). Economic policy uncertainty and corporate cash policy: International evidence. Journal of Accounting and Public Policy, 38(6), 106694. doi:10.1016/j.jaccpubpol.2019.106694
Myers, S C. (1984). The Capital Structure Puzzle. Journal of Finance, 39(3), 574-592. doi:10.3386/w1393
Myers, S. C. & Majluf, N. S. (1984). Corporate fnancing and investment decisions when frms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. doi:10.1016/0304-405X(84)90023-0
Nguyen, N. H., & Phan, H. V. (2017). Policy uncertainty and mergers and acquisitions. Journal of Financial and Quantitative Analysis, 52(2), 613-644. doi:10.1017/S0022109017000175
Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica: Journal of the Econometric Society, 1417-1426. doi:10.2307/1911408
Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3-46. doi:10.1016/S0304-405X(99)00003-3
Pástor, L., & Veronesi, P. (2013). Political uncertainty and risk premia. Journal of Financial Economics, 110(3), 520-545. doi:10.1016/j.jfineco.2013.08.007
Phan, H. V., Nguyen, N. H., Nguyen, H. T., & Hegde, S. (2019). Policy uncertainty and firm cash holdings. Journal of Business Research, 95, 71–82. doi:10.1016/j.jbusres.2018.10.001
Picolo, J. D., Dal Magro, C. B., Silva, T. P., & Bernardo, L. (2018). The influence of the financial slack on the economical performance of Brazilian and Chilean companies. Cuadernos de Economía, 41(115), 19-30. doi:10.1016/j.cesjef.2016.12.002
Quinteiro, L. G. L., Medeiros, O. R., & Niyama, J. K. (2020). Modelo de Cinco-Fatores de Fama e French e o risco de incerteza econômica no mercado acionário brasileiro. GCG: Revista de Globalización, Competitividad y Gobernabilidad, 14(1), 116-134. doi:10.3232/GCG.2020.V14.N1.06
Schwarz, L. A. D., & Dalmácio, F. Z. (2020). The relationship between economic policy uncertainty and corporate leverage: Evidence from Brazil. Finance Research Letters, 101676. doi:10.1016/j.frl.2020.101676
Schymura, L. G. (2019). O que explica as diferenças na trajetória da incerteza no mundo e no Brasil? Revista Conjuntura Econômica, 73(12), 6-9. Recuperado de https://bibliotecadigital.fgv.br/ojs/index.php/rce/article/view/81367
Shaikh, I. A., O'Brien, J. P., & Peters, L. (2018). Inside directors and the underinvestment of financial slack towards R&D-intensity in high-technology firms. Journal of Business Research, 82, 192-201. doi:10.1016/j.jbusres.2017.09.014
Solarin, S. A., & Gil-Alana, L. A. (2021). The persistence of economic policy uncertainty: Evidence of long range dependence. Physica A: Statistical Mechanics and its Applications, 568, 125698. doi:10.1016/j.physa.2020.125698
Wiengarten, F., Fan, D., Lo, C. K., & Pagell, M. (2017). The differing impacts of operational and financial slack on occupational safety in varying market conditions. Journal of Operations Management, 52, 30-45. doi:10.1016/j.jom.2016.12.001
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2022-04-23
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Dias Souza, G. H. ., Batista, A. T. N., & Cunha, J. V. A. da. (2022). Effects of Economic Policy Uncertainty on Cash of Brazilian Companies. Journal of Education and Research in Accounting (REPeC), 16(1). https://doi.org/10.17524/repec.v16i1.2966
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