Corporate Cash Holding, Twin Agency Problems and Policy Uncertainty

We document a strong negative relationship between policy uncertainty and corporate cash holdings for non-U.S. firms from 19 countries. Consistent with the twin agency problems framework of Stulz (2005), firms reduce their cash holdings by increasing their dividend payments to minimize the loss from potential state expropriation when facing policy uncertainty. The economic link between policy uncertainty, reduction in cash holdings, and increase in dividend payouts is stronger for firms in countries in which state expropriation is more likely or minority shareholder protection is lower. Overall, results highlight the significance of twin agency problems and country attributes in corporate finance