Navigating through political risk in Vietnam: The role of corporate cash holdings

Abstract

This paper investigates the effect of political risk on corporate cash holdings in Vietnam from 2009 to 2018. We show that political risk is positively associated with cash holdings. Our findings are robust to other advanced estimation methods when alternative measures of political risk are considered and after addressing endogeneity caveats by two-stage least square estimation. Further analyses reveal that the positive impact of political risk on cash holdings is more pronounced for financially constrained firms and firms with high institutional ownership. Overall, the findings contribute to the literature on how political risk exposure increases firm cash holdings, which is consistent with the precautionary savings motive of cash.