Uncertainty and the value of cash holdings

- This paper examines how firm-level uncertainty affects the value of cash holdings.
- A firm with higher firm-level uncertainty has a higher value of cash holdings.
- Uncertainty affects the value of cash through financial constraints and agency conflicts.
- The effect is also attributed to the increased value of the option of waiting and seeing.

We find that a firm facing higher uncertainty has a higher value of cash. This effect is attributed to the increased value of the option to wait and see as well as the aggravated financial constraints and mitigated agency conflicts.