Firms' cash reserve, financial constraint, and geopolitical risk

This study investigates whether geopolitical risks influence Chinese firms' cash holdings. We find that firms tend to hoard more cash as a precautionary measure when faced with geopolitical risk. Moreover, firms that are financially constrained maintain cash reserves as buffer against geopolitical risk. Finally, firms in manufacturing-related industries tend to save more cash and protect themselves from risk spillover as China's manufacturing sector has slowed down with the current China-United States trade war. Our research notes that policymakers and investors can pay more attention to the effect of geopolitical risk on enterprises' cash reserves.