Article: The interplay of political risk, investments, and cash holdings in corporate financial strategies Journal: International Journal of Banking, Accounting and Finance (IJBAAF) 2026 Vol.16 No.1 pp.1 - 26 Abstract: This study examines how systematic versus idiosyncratic political risks differentially affect corporate investments and cash holdings using 117,049 firm-quarter observations of US public firms from 2002 to 2022. We distinguish between economic policy uncertainty (EPU) as systematic risk and firm-level political risk (PRisk) as idiosyncratic risk, addressing a fundamental gap in literature. Employing panel data regression models with fixed effects and quantile regressions, our results reveal significant heterogeneity in political risk transmission mechanisms. While both risks negatively correlate with investments, PRisk loses explanatory power, but EPU maintains consistent negative correlations. For cash holdings, PRisk shows robust positive correlations supporting precautionary motives. Quantile regressions demonstrate that idiosyncratic political risk primarily affects firms in the lowest investment quantiles, while systematic risk exerts substantially greater influence on high-investment firms. Our findings extend the systematic versus idiosyncratic risk framework to political uncertainty, providing the first comprehensive comparison of how different types of political uncertainty operate through distinct channels. Inderscience Publishers - linking academia, business and industry through research

Title: The interplay of political risk, investments, and cash holdings in corporate financial strategies

Authors: Adriana Bruscato Bortoluzzo; Adalto Barbaceia Gonçalves; Daniel Strozzi Soares

Addresses: Insper, Rua Quata 300, São Paulo, CEP 04546042, Brazil ' Insper, Rua Quata 300, São Paulo, CEP 04546042, Brazil ' Insper, Rua Quata 300, São Paulo, CEP 04546042, Brazil

Abstract: This study examines how systematic versus idiosyncratic political risks differentially affect corporate investments and cash holdings using 117,049 firm-quarter observations of US public firms from 2002 to 2022. We distinguish between economic policy uncertainty (EPU) as systematic risk and firm-level political risk (PRisk) as idiosyncratic risk, addressing a fundamental gap in literature. Employing panel data regression models with fixed effects and quantile regressions, our results reveal significant heterogeneity in political risk transmission mechanisms. While both risks negatively correlate with investments, PRisk loses explanatory power, but EPU maintains consistent negative correlations. For cash holdings, PRisk shows robust positive correlations supporting precautionary motives. Quantile regressions demonstrate that idiosyncratic political risk primarily affects firms in the lowest investment quantiles, while systematic risk exerts substantially greater influence on high-investment firms. Our findings extend the systematic versus idiosyncratic risk framework to political uncertainty, providing the first comprehensive comparison of how different types of political uncertainty operate through distinct channels.

Keywords: political risk; PRisk; systematic risk; idiosyncratic risk; cash holdings; investment decisions; economic policy uncertainty; EPU; corporate finance; quantile regression.

DOI: 10.1504/IJBAAF.2026.155762

International Journal of Banking, Accounting and Finance, 2026 Vol.16 No.1, pp.1 - 26

Accepted: 09 Feb 2026
Published online: 13 Aug 2026 *

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Title: The interplay of political risk, investments, and cash holdings in corporate financial strategies

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