Firm cash holdings under twin shocks of economic uncertainty and inflation: New evidence from Vietnam

Abstract

This study examines the influences of Economic Policy Uncertainty (EPU) at global, World Uncertainty Index at domestic (WUI) and inflation on firm cash holdings during COVID-19. Empirical analysis is carried out for 406 listed firms with 4060 firm-year observations and 17 industries in the Vietnam stock market from 2010 to 2021. Several panel estimates are applied to correct for heteroscedasticity, multicollinearity, autoregression, endogeneity show interesting findings. First, higher volatility of uncertainty has negative impact on firm cash holdings in Vietnam, which is significant for domestic WUI but is not significant global EPU. Second, the higher the Producer Price Index (PPI), the lower the firm cash holdings. Third, real estate is the industry most affected by domestic uncertainty and fisheries is the most benefited industry during COVID-19. The findings suggest that different policies to support industries during crisis should be applied.