Uncertainty, precautionary saving, and investment: Evidence from prescheduled election cycles

Candace E. Jens, T. Beau Page

Research output: Contribution to journalArticlepeer-review

Abstract

We show empirically that firms increase cash holdings starting as early as one year before prescheduled (i.e., predictable) elections. Then, for four quarters around elections when uncertainty and external financing costs are high, firms decrease investment and draw down saved cash balances to avoid tapping external financing. We use a dynamic model of firm investment and saving to demonstrate the importance of anticipation of future financing costs to firms' pre-election precautionary saving behavior. Theoretically, if election uncertainty were only to affect potential investment, lower firm investment would result in higher contemporaneous cash balances, which is inconsistent with our empirical results.

Original languageEnglish (US)
JournalFinancial Management
DOIs
StateAccepted/In press - 2024

Keywords

  • cash
  • corporate saving
  • gubernatorial elections
  • investment
  • political uncertainty

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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