Uncertainty Volatility, Investment, And Cash Holding In ASEAN Countries

Marcella Roring; Rita Juliana

doi:10.24912/ja.v26i2.905

Authors

Marcella Roring Management Department, Faculty of Economic & Business, Universitas Pelita Harapan, Tangerang, Indonesia
Rita Juliana Management Department, Faculty of Economic & Business, Universitas Pelita Harapan, Tangerang, Indonesia

DOI:

https://doi.org/10.24912/ja.v26i2.905

Keywords: Investment; Cash Holding; Uncertainty.

Abstract

This study aims to show the effect of uncertainty on firms’ corporate investment and cash holding in five ASEAN countries, namely Malaysia, Indonesia, Singapore, Thailand, and Vietnam. The study was conducted using data from non-financial public listed firms in these five ASEAN countries during the 2006 to 2020 period. The uncertainty volatility is measured using the standard deviation of the economic policy uncertainty index. The results of this study find that uncertainty volatility increases corporate investment and decreases corporate cash holding. This result indicates that high uncertainty economic condition cause firms to invest to reduce information asymmetry by giving signals to external investors through investment, and as result, it reduces the corporate cash holdings. Moreover, we also find that uncertainty volatility is more economically significant than Economic Policy Uncertainty it self. It is possible that uncertainty volatility can better capture the real uncertain condition in the economy.

Author Biographies

Marcella Roring, Management Department, Faculty of Economic & Business, Universitas Pelita Harapan, Tangerang, Indonesia

marcelaroring@gmail.com

Rita Juliana, Management Department, Faculty of Economic & Business, Universitas Pelita Harapan, Tangerang, Indonesia

rita.juliana@uph.edu

References

Al-Thaqeb, S. A., & Algharabali, B. G. (2019). Economic Policy Uncertainty: A Literature Review. Journal of Economic Asymmetries, 20(July), e00133. https://doi.org/10.1016/j.jeca.2019.e00133.

Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring Economic Policy Uncertainty. The Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/qjw024.

Belderbos, R., Tong, T. W., & Wu, S. (2019). Multinational Investment And The Value Of Growth Options: Alignment Of Incremental Strategy To Environmental Uncertainty. Strategic Management Journal, 40(1), 127–152. https://doi.org/https://doi.org/10.1002/smj.2969.

Benigno, P., Canofari, P., Bartolomeo, G. DI, & Messori, M. (2020). Uncertainty and the Pandemic Shocks IN-DEPTH ANALYSIS.

Bloom, N. (2014). Fluctuations in Uncertainty. Journal of Economic Perspectives, 28(2), 153–176. https://doi.org/10.1257/JEP.28.2.153.

Born, B., Breuer, S., & Elstner, S. (2018). Uncertainty and the Great Recession. Oxford Bulletin of Economics and Statistics, 80(5), 951–971. https://doi.org/10.1111/OBES.12229.

Breuer, W., Rieger, M. O., & Soypak, K. C. (2017). Corporate Cash Holdings And Ambiguity Aversion. Review of Finance, 21(5), 1933–1974. https://doi.org/10.1093/rof/rfw025.

Chang, C.-C., & Yang, H. (2022). The Role Of Cash Holdings During Financial Crises. Pacific-Basin Finance Journal, 72, 101733. https://doi.org/https://doi.org/10.1016/j.pacfin.2022.101733.

Chen, H.-C., Chou, R. K., & Lu, C.-L. (2018). Saving For A Rainy Day: Evidence From The 2000 Dot-Com Crash And The 2008 Credit Crisis. Journal of Corporate Finance, 48, 680–699. https://doi.org/https://doi.org/10.1016/j.jcorpfin.2017.12.025.

Chen, J. L., Jia, Z. T., & Sun, P. W. (2016). Real Option Component Of Cash Holdings, Business Cycle, And Stock Returns. International Review of Financial Analysis, 45, 97–106. https://doi.org/10.1016/J.IRFA.2016.03.008.

Choi, S., & Loungani, P. (2015). Uncertainty And Unemployment: The Effects Of Aggregate And Sectoral Channels. Journal of Macroeconomics, 46, 344–358. https://doi.org/10.1016/J.JMACRO.2015.10.007.

Demir, E., & Ersan, O. (2017). Economic Policy Uncertainty And Cash Holdings: Evidence From BRIC Countries. Emerging Markets Review, 33, 189–200. https://doi.org/10.1016/j.ememar.2017.08.001.

Goodell, J. W., Goyal, A., & Urquhart, A. (2021). Uncertainty Of Uncertainty And Firm Cash Holdings. Journal of Financial Stability, 56, 100922. https://doi.org/10.1016/J.JFS.2021.100922.

Gulen, H., & Ion, M. (2016). Policy Uncertainty and Corporate Investment. The Review of Financial Studies, 29(3), 523–564. https://doi.org/10.1093/RFS/HHV050.

Hsiao, H.-F., Hsu, C.-Y., Li, C.-A., & Hsu, A.-C. (2014). The Relationship Among Managerial Sentiment, Corporate Investment, and Firm Value: Evidence from Taiwan. Emerging Markets Finance and Trade, 47(2), 99–111. https://doi.org/10.2753/REE1540-496X470207.

Im, H. J., Park, H., & Zhao, G. (2017). Uncertainty And The Value Of Cash Holdings. Economics Letters, 155, 43–48. https://doi.org/10.1016/J.ECONLET.2017.03.005.

Iqbal, U., Gan, C., & Nadeem, M. (2019). Economic Policy Uncertainty And Firm Performance. Https://Doi.Org/10.1080/13504851.2019.1645272, 27(10), 765–770. https://doi.org/10.1080/13504851.2019.1645272.

Istiak, K., & Serletis, A. (2020). Risk, Uncertainty, And Leverage. Economic Modelling, 91, 257–273. https://doi.org/10.1016/J.ECONMOD.2020.06.010.

Javadi, S., Mollagholamali, M., Nejadmalayeri, A., & Al-Thaqeb, S. (2021). Corporate Cash Holdings, Agency Problems, And Economic Policy Uncertainty. International Review of Financial Analysis, 77(February), 101859. https://doi.org/10.1016/j.irfa.2021.101859.

Jory, S. R., Khieu, H. D., Ngo, T. N., & Phan, H. V. (2020). The Influence Of Economic Policy Uncertainty On Corporate Trade Credit And Firm Value. Journal of Corporate Finance, 64, 101671. https://doi.org/10.1016/J.JCORPFIN.2020.101671.

Khan, M. A., Qin, X., Jebran, K., & Rashid, A. (2020). The Sensitivity of Firms’ Investment to Uncertainty and Cash Flow: Evidence From Listed State-Owned Enterprises and Non-State-Owned Enterprises in China: Https://Doi.Org/10.1177/2158244020903433, 10(1).

Lewellen, J., & Lewellen, K. (2016). Investment and Cash Flow: New Evidence. Journal of Financial and Quantitative Analysis, 51(4), 1135–1164. https://doi.org/10.1017/S002210901600065X.

Matousek, R., Panopoulou, E., & Papachristopoulou, A. (2020). Policy Uncertainty And The Capital Shortfall Of Global Financial Firms. Journal of Corporate Finance, 62, 101558. https://doi.org/10.1016/J.JCORPFIN.2020.101558.

Neamtiu, M., Shroff, N., White, H. D., & Williams, C. D. (2014). The Impact Of Ambiguity On Managerial Investment And Cash Holdings. Journal of Business Finance and Accounting, 41(7–8), 1071–1099. https://doi.org/10.1111/jbfa.12079.

Nilavongse, R., Rubaszek, M., & Uddin, G. S. (2020). Economic Policy Uncertainty Shocks, Economic Activity, And Exchange Rate Adjustments. Economics Letters, 186. https://doi.org/10.1016/j.econlet.2019.108765.

Phan, D. H. B., Iyke, B. N., Sharma, S. S., & Affandi, Y. (2021). Economic Policy Uncertainty And Financial Stability–Is There A Relation? Economic Modelling, 94(February), 1018–1029. https://doi.org/10.1016/j.econmod.2020.02.042.

Phan, D. H. B., Sharma, S. S., & Tran, V. T. (2018). Can Economic Policy Uncertainty Predict Stock Returns? Global Evidence. Journal of International Financial Markets, Institutions and Money, 55, 134–150. https://doi.org/10.1016/J.INTFIN.2018.04.004.

Sharma, P., Leung, T. Y., Kingshott, R. P. J., Davcik, N. S., & Cardinali, S. (2020). Managing Uncertainty During A Global Pandemic: An International Business Perspective. Journal of Business Research, 116, 188–192. https://doi.org/10.1016/J.JBUSRES.2020.05.026.

Shoag, D., & Veuger, S. (2016). Uncertainty And The Geography Of The Great Recession. Journal of Monetary Economics, 84, 84–93. https://doi.org/10.1016/J.JMONECO.2016.11.002.

Sreedevi, R., & Saranga, H. (2017). Uncertainty And Supply Chain Risk: The Moderating Role Of Supply Chain Flexibility In Risk Mitigation. International Journal of Production Economics, 193, 332–342. https://doi.org/10.1016/J.IJPE.2017.07.024.

Wang, Y., Chen, C. R., & Huang, Y. S. (2014). Economic Policy Uncertainty And Corporate Investment: Evidence From China. Pacific Basin Finance Journal, 26, 227–243. https://doi.org/10.1016/j.pacfin.2013.12.008.

Xu, Z. (2020). Economic Policy Uncertainty, Cost Of Capital, And Corporate Innovation. Journal of Banking and Finance, 111. https://doi.org/10.1016/j.jbankfin.2019.105698.