Cash holdings of russian companies and the uncertainty in economic policy

The issues related to effective use of various sources of financing companies include not only internal but also external factors that influence the choice of a source. These issues are rather understudied in the literature, as they are exogenous for companies who thus cannot influence them. However, consideration of economic policy, especially its unpredictability, affects all economic and financial decisions. The problem of company liquidity has been gaining popularity in theoretical and empirical literature, as existing trends in money accumulation continue to grow among global companies operating in both developing and developed markets. This study determines the impact of uncertainty in economic policy on the monetary reserves of Russian companies that guarantee their liquidity. The study was conducted with a sample of 437 public non-financial Russian companies in the period from 2003 to 2017. Regression analysis methods have been used to achieve the objectives of the study. An index based on the frequency indicators of newspaper articles (EPU) was used to calculate uncertainty in Russia's economic policy. The obtained results have shown that the growth of the monetary supply of companies depends on the growth of uncertainty in economic policy. Russian companies behave much more uniformly in conditions of uncertainty limiting themselves in pursuing opportunities. The study revealed that future uncertainty affects companies, both through external financing and internal channels. Using external sources, uncertainty increases the cost of loans, which in turn encourages companies to store more cash. Using internal means in conditions of uncertainty, companies find it more difficult to predict future cash flows, which leads to an increase in cash even today. Understanding these issues helps to develop more effective investment and financial strategies for companies and would allow companies to reduce the impact of external shocks on their effectiveness.