Political risk, lobbying activity and corporate cash holdings

Abstract

In this paper, I examine the relation between political risk and corporate cash holdings. Using firm-level political risk index based on textual analysis, I find that firms with high political risk are likely to hold more cash. This study also tries to identify how lobbying activity affects cash holdings with political risks considered together. Through a super-tight presidential election, I tried to mitigate the endogenous concern. Results indicate that firms with high lobby expenditure hold more cash and political risk accelerates this effect when election is not predictable. Lastly, this study shows that effect of political risk on cash holding extends beyond business cyclicality.