Unified government and the value of cash holdings

This study examines the impact of a government regime on cash holdings' valuation, finding that the marginal value of an extra dollar of cash is 24-26 cents greater when the government is unified. As the degree of political conflicts and economic uncertainty are lower in this regime, greater cash reserves allow firms to alleviate under-investment problems and capture government-driven investment opportunities, leading to an increased marginal value of cash holdings. Taken together, our findings highlight that cash value hinges on the political regime in which firms operate.