International Review of Financial Analysis

Consistent with the agency view of cash holdings, we document a strong negative relationship between economic policy uncertainty and corporate cash holdings for non-U.S. firms from 19 countries. Our results are robust to different measures of cash holdings and model specifications and survive after addressing endogeneity. We provide evidence that the decrease in cash holdings is moderated by shareholders' ability to force managers to disgorge cash that fits consistently within the agency framework. Overall, results suggest that lowering cash holdings help alleviate agency problems in the presence of policy uncertainty and underscore the significance of country attributes in corporate finance. • We examine the relationship between Economic policy uncertainty (EPU) and cash holdings. • Sample is comprised of non-US firms from 19 countries between 1991 and 2019. • Cash holdings is negatively associated with EPU. • Decrease in cash holdings is moderated by shareholders' ability to force managers to disgorge cash. • Results confirm that lowering cash holdings alleviates agency problems in the presence of policy uncertainty.

Corporate cash holdings, agency problems, and economic policy uncertainty