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Political culture and corporate cash holdings

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Abstract

Do political beliefs matter for corporate cash-holding behavior? In this paper, we analyze whether the political preferences of managers affect their cash holdings. Using a composite political index to measure corporate political culture, we find that firms with Republican-leaning managers hold significantly less cash than firms managed by Democrats. We attribute the lower-level cash holdings of Republican firms to more conservative corporate policies, indicated by lower risk exposure, lower R&D expenditure, lower capital investment, and higher profitability. Our results survive various robustness tests, such as state-fixed effects and IV tests.

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Data availability statement

The data that support the findings of this study are available from COMPUSTAT and Thompson Reuters, but restrictions apply to the availability of these data, which were used under license for the current study, and so are not publicly available. The PCI data is publicly available as a supplemental material to Hutton et al. (2015).

Notes

  1. According to the 2021 Gallup poll, 74% of Republicans self-identify as conservative, 22% as moderate, and just 4% as liberal. In contrast, 12% of Democrats self-identify as conservative, 37% as moderate, and 50% as liberal.

  2. https://news.gallup.com/poll/21496/gun-ownership-higher-among-republicans-than-democrats.aspx

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Authors and Affiliations

  1. University of New Mexico, Anderson School of Management, 1 University of New Mexico, MSC05 3090, Albuquerque, NM, 87131-0001, USA

    Chih-Huei Banks

  2. Adelphi University, Robert B.Willumstad School of Business, One South Avenue, P.O. Box 701, Garden City, NY, 11530-0701, USA

    Huajing Hu

  3. SUNY College at Old Westbury, School of Business, 223 Store Hill Rd, Old Westbury, NY, 11568, USA

    Katarzyna Platt

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  1. Chih-Huei Banks
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  2. Huajing Hu
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  3. Katarzyna Platt
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Correspondence to Katarzyna Platt.

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Table 10

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Banks, CH., Hu, H. & Platt, K. Political culture and corporate cash holdings. J Econ Finan 47, 541–563 (2023). https://doi.org/10.1007/s12197-023-09636-9

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