Economic uncertainty and corporate cash holdings: Evidence from Taiwan

•Firms’ cash holdings decisions vary based on their funding limitations, export dependence, and the economic uncertainties they encounter.•Firms increase cash holdings in response to growing economic uncertainty due to precautionary motives.•Firms focused on exports sales, especially smaller and unl...

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Bibliographic Details
Published in:The North American journal of economics and finance 2024-07, Vol.73, p.102183, Article 102183
Main Authors: Yang, Chien-Wen, Hsieh, Yi-Shan, Hung, Chih-Yuan
Format: Article
Language:English
Subjects:
Cash holdings
Economic uncertainty
Export sales
Financing constraints
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Summary:•Firms’ cash holdings decisions vary based on their funding limitations, export dependence, and the economic uncertainties they encounter.•Firms increase cash holdings in response to growing economic uncertainty due to precautionary motives.•Firms focused on exports sales, especially smaller and unlisted ones, face increased challenges in fund management amidst economic uncertainty.•Firms focused on domestic sales, especially smaller ones listed, make slight cash holding adjustments in response to increasing economic uncertainty. We utilize data from publicly listed firms and unlisted entities in Taiwan spanning the period from 1990 to 2020 to investigate the impact of global, Asia-Pacific, China, or Taiwan’s economic uncertainty on firm cash reserves within a small open economy. Our empirical findings indicate that, as economic uncertainty increases, Taiwanese firms demonstrate a tendency to increase their cash holdings, particularly those reliant on exports. Smaller and unlisted export-oriented firms encounter greater challenges in fund management, thereby leading to an augmentation in their cash reserves. Conversely, enterprises primarily focused on domestic sales exhibit a diminished response to uncertainty, with the exception of smaller listed companies that marginally raise their cash holdings. These results illuminate the influence of financing constraints, export reliance, and various uncertainties on decisions pertaining to cash holdings. Furthermore, the study underscores the dependence of Taiwanese firms on trade and emphasizes the impact of external economic uncertainty on their decision-making process.
ISSN:1062-9408
1879-0860
DOI:10.1016/j.najef.2024.102183