1.

Introduction

1.1. Uncertainty of economic policy and holding money in the company

The company operates in a macroeconomic environment shaped by governments and politicians

Therefore, economic policy has an impact on the business environment of the company and thereby
affects

influence their decisions, including financial decisions (Demir & Ersan, 2017). Two problems are

Recently attracting the attention of researchers is the introduction of several measures for

uncertainty in economic policy can be used globally, and the effects of

that affect the financial decisions of the company.

One of the important contributions to the method of measuring economic policy uncertainty is

Economic Policy Uncertainty (EPU) by Baker et al

(2016). This indicator is built on three components: (1) The first component is formed

from the search results a percentage of keywords indicates uncertainty in the total words of the 10
major US newspapers;

(2) the second component measures the degree of uncertainty about the change in Federal tax codes

Future; (3) the third component reflects the inconsistency in experts' forecasts

on inflation and government spending. The EPU is said to be able to capture uncertainty in the

represent policy-making decision-makers who are uncertain about its impact in the present

present and future. Of the three components above, Baker et al. (2016) have shown that most of the

The impact of the EPU on economic activities mainly comes from the first component

so the index, which is the ratio of the number of keywords indicating uncertainty to the total word
count of the selected set of newspapers. Above

Based on this idea, Ahir et al (2018) built and measured the global uncertainty index

The World Uncertainty Index (WUI) is based on the frequency of the keyword “Uncertainty” and
variations.

It appears in national reports by the Economist Intelligence Unit (EIU,

Brother). The larger the value of WUI, the higher the degree of economic policy uncertainty.
Advantage

of the WUI index is highly consistent because it is calculated based on a set of reports prepared in a
reasonable manner

system for countries, and the index is comparable across countries in the sample. Do
Thus, WUI provides an effective measurement tool for studies of the effects of major uncertainty

book to the international economy (Ahir et al., 2018). The birth of the WUI index has been opened

potential research directions on the impact of policy uncertainty on economic activities on

global scope.

The Company holds cash for the primary motive of trading, hedging and speculation. In

During periods of heightened uncertainty, hedging incentives push firms to hold more cash

to respond to contingencies (Baum et al., 2012). Possible macroeconomic and political instability

the potential to increase policy uncertainty, forcing firms to engage in inefficient activities,

which includes an increase in money holdings (Al-Najjar, 2013). However, increased uncertainty is also
possible

affect business results, the company earns less profit resulting in less

more money to accumulate (Pástor & Veronesi, 2012). Or in companies where there is a serious
conflict problem

important between managers and shareholders, the board of directors may require the executive board
to

policy of limited cash holdings to reduce the possibility of abuse of power in spending by managers
when conditions

increasing uncertainty (Ndou & Mokoena, 2019).

Until now, studies have examined the impact of uncertainty in economic policy on

corporate money holdings are mainly done in one country, e.g. Gulen and Ion (2013), Gao and

et al (2014) research for companies in the US, while Xu et al (2016) study for companies in the US

company in China. Demir and Ersan (2017) is one of the few studies that goes beyond this scope

en a country with a sample of companies from four countries in the BRIC group (including:

Brazil, Russia, India, China).

In a world where the opening up and integration of economies is becoming more and more extensive,

uncertainties about economic policy in one country, especially a dominant one,

may have an impact on the financial decisions of companies in other countries. For example, Ahmed

and Huo (2019) study the spread of the shock of the Chinese stock market crash in the period

2015–2016 recorded evidence of both good news and shocks from China

causing spillover effects on stock markets of Asia - Pacific countries. Based

Approaching current empirical studies, the authors argue that the effect of uncertainty

in a country's economic policy that governs cash holdings in firms in that country

Neighborhood is an experimental problem that is underexplored.

1.2. Economic ties are deepening between China and Southeast Asian countries

In recent times, many reports have noted the deepening and influential relationship

China's domination of Southeast Asian countries. Oh et al (2017) noted

that, 2009 marks the time when China overtakes the US, Japan and the EU to become

Southeast Asia's largest trading partner (Figure 1a), China's FDI in Southeast Asia

Asia has grown strongly and is second only to the EU, US and Japan (Figure 1b). Along with the
commercial area

ASEAN - China free trade came into effect (in 2011), by 2015, bilateral trade

China - Southeast Asia has reached 395 billion USD, equivalent to 15% of the value of external trade of

Southeast Asia. China's FDI in Southeast Asia started off low but has grown

rapidly, reaching $6.4 billion in 2015.

Among the countries that have a close partnership with China, Vietnam is the country with a large trade
share

The largest trade with China in the region (Figure 2a), Singapore accounts for 48% of China's FDI

countries into Southeast Asia (Figure 2b). Group of 6 countries: Indonesia, Malaysia, Philippines,

Singapore, Thailand, and Vietnam account for 94% of China's trade transactions and 85% of FDI

in Southeast Asia (Figure 2).

Ahmed and Huo (2019), Zhang et al (2019) are recent empirical studies on photo

influence of the Chinese economy on other countries. In it, Zhang et al (2019) see

examine the influence of China and the US on a number of important markets, including:

securities, credit, energy and commodities. Zhang et al (2019) conclude that although the US still keeps

dominant position, but China has had greater influence over the rest of the world. Zhang

et al (2019) also mentioned concerns about the competition of China and the US in

Global order delimitations are more likely to be driven by political than economic factors.

Thus, in the past decade, China has emerged as an important partner of East Asia

South Asia on trade and investment. Southeast Asian economies have benefited significantly from the
growth
China's strong growth, high trade and investment, regional production network

more expanded. However, with these achievements, China's economic policy is still

attracted the attention of scholars because of the potential instability behind the overheating growth
(Ah, 2017).

On the basis of a research gap on the dominant national policy uncertainty,

Keeping money in companies in neighboring countries is an unexplored empirical problem, and because

China's increasingly dominant relationship with Southeast Asian countries as above

I think that studying the relationship between China's economic policy uncertainty and

Keeping money in companies in Southeast Asia is a matter of concern today and is also a

goal set for this article.

Because of restrictions on company data collection in some other countries, and because of a well-
known relationship

dominance of the group of 6 countries Indonesia, Malaysia, Philippines, Singapore, Vietnam and
Thailand with China

China (6 countries account for 94% of China's trade transactions and 85% of FDI in Southeast Asia)

Asia), the article was conducted on a sample of 6 countries: Indonesia, Malaysia, Philippines,

Singapore, Vietnam and Thailand – represent Southeast Asia.

The economic policy uncertainty of China and the six countries in the sample is calculated based on

into the dataset of Ahir et al (2018). Empirical results show economic policy uncertainty

of China reduces cash holdings in the following year among Southeast Asian companies.

The results are consistent when the authors use different measures for the main uncertainty

economic policy of China, as well as when estimated by different methods and controls

control the factors likely to affect the cash holdings of the enterprise. In addition, the article also

found evidence that the uncertainty in China's economic policy reduces significantly

Describe the negative effect of investment on the cash holdings of the firms in the sample.

The article has some important contributions as follows: First, through the research of the author's
group, this is

first study to examine the effect of uncertainty on the economic policy of a large country

to hold money from companies belonging to a group of smaller economies in the vicinity. So post

The article is expected to contribute to research trends on the dominant role of major economies
financial decisions of firms in small economies. From there, the study suggests the

useful policy implications for managers and investors. Second, the experimental results on the

The opposite effect of uncertainty in economic policy from China to holding money of other countries

Southeast Asian enterprises contribute to enriching the treasure of empirical research on

factors affecting the company's cash holdings. Finally, this study uses the WUI index that is

developed by Ahir et al (2018) to measure uncertainty in economic policy – this is a

The method has not been used so far in the study of factors affecting money holding

face of the company, therefore, it is expected that this measure can be applied in research studies

the future on factors affecting cash holdings of enterprises.

The rest of the article is presented as follows: Theoretical framework and research hypotheses

presented in part 2; part 3 presents data, variable definitions, models, research methods; conclude

research results are shown in section 4; and finally part 5, concluding the article.

2. Theoretical framework and research hypotheses

2.1. Channels of transmission of uncertainty in economic policy to money holdings

Ndou and Mokoena (2019) describe the transmission mechanism from economic policy uncertainty to
decision

Holdings of the company’s money (Figure 3). Accordingly, the transmission mechanism of economic
policy uncertainty to

The firm’s decision to hold money is explained through the theoretical arguments of the great conflict

Representation, financial constraint theory, and real options theory.

Figure 3. Uncertainty pass-through in economic policy up to the year of holding money

Source: Ndou and Mokoena (2019).

2.1.1. Economic policy uncertainty increases money holdings

There are two reasons for economic policy uncertainty to increase money holdings. Specifically:

- Firstly, from the perspective of financial constraints, mobilizing external funding sources is quite
expensive

Poor (Myers & Majluf, 1984). Kim et al (1998) suggest that under conditions of heightened uncertainty,
the

Investment associations can appear at any time. If raising external funding is expensive

The fact that the company has an abundant cash source is necessary to promptly seize lucrative
investment opportunities

Words from uncertain situations. In other words, under the influence of financial constraints,
uncertainty increases

In economic policy to push companies to hold more money to quickly meet investment needs

When needed. Gulen and Ion (2013) also agree on the above point, for financially constrained firms,

In the event of increased policy uncertainty, will increase money holdings to reduce the cost of capital

For investment activities. On the other hand, increased uncertainty exposes the company to financial
friction

And greater cash flow risk, thus prompting the company to hold more cash for hedging purposes
(Baum et al., 2012).

Second, based on real options theory, Bernanke (1983) and Rodrik (1991) argue that, if

Investment projects are irreversible, economic policy uncertainty will push companies to delay
investment

Investment, thereby increasing cash hoarding. The company holds the money waiting until the
information becomes certain

More and investment opportunities manifest more clearly to invest. The investment-delaying effect of
policy uncertainty

Economy has been proven in many previous studies such as: Gulen and Ion (2013) with the

American firms, Wang et al. (2014) with Chinese firms and in the middle sample of major uncertainty

Economic policy of China and corporate investment in Southeast Asia (Mai Thi Thanh Tra & Tran Thi

Hai Ly, 2020).

2.1.2. Economic policy uncertainty reduces money holdings

Fama and French (1998) argue that the problem of conflict between shareholders and managers occurs
when the

Management acts in its own interest rather than in the interests of shareholders. Holding a lot of
money

Involves the risk of increasing conflicts of interest between managers and shareholders because
managers will
Can waste money on inefficient activities, including overinvestment. This is possible

Potential to harm the interests of shareholders (Jensen & Meckling, 1976). If there is no conflict of
interest from

Agency problem, or this conflict is small, then under the conditions of increased uncertainty, the firm
can increase

Holding money to serve the needs of seizing investment opportunities as described above. However,
when pulse

If the conflict between management and shareholders becomes serious, the board of directors may
decide to reduce the amount of money

Money held to limit the risk of managers abuse of power and invest in inefficient projects.

Experimentally, Pástor and Veronesi (2012) demonstrated that for firms with

Close to the government, a significant portion of their cash flow comes from the government.
Therefore, in

During periods of political turmoil, these companies’ profits can be significantly reduced, and thus

They don’t have the money in reserve. The research results of Pástor and Veronesi (2012) imply that

Increased economic policy uncertainty can significantly reduce business profits, from which the
company

Have less cash to accumulate.

In addition, Gao et al (2014) argue that economic policy uncertainty has two effects

Opposite effect on firm’s cash holdings. On the one hand, systematic uncertainty

High systems impede growth, reducing the need to maintain cash reserves to finance operations

Investment and production in the future. On the other hand, uncertainty exposes the company to
financial friction and risk

Greater cash flow risk, prompting them to hold more money for hedging purposes. Gao’s argument

Et al (2014) imply that the impact of policy uncertainty on firm’s cash holdings can be

Is to increase or decrease, depending on whether uncertainty reduces spending demand due to

increased decline

Growth, or uncertainty leads to a higher need for hedging.

The above theoretical arguments show that there is a transmission channel through which policy
uncertainty exists

Can promote businesses to increase their money holdings as well as a transmission channel to promote
businesses

Reduce money holdings. It can be concluded that the effect of policy uncertainty on the level of
holdings

Money seems to be an empirical problem, and more empirical research is needed

To see which behavior of the firm’s cash holdings supports the argument of the theory.
2.2. Experimental evidence

Since the study of Opler et al. (1999), factors affecting the decision to hold money

Of the company has been studied extensively, focusing mainly on the basic factors of the company such
as:

Investment opportunities (Opler et al., 1999; Dittmar et al., 2003; Boubakri et al., 2013), process

firm size (Opler et al., 1999; Dittmar et al., 2003; Boubakri et al., 2013), debt ratio

(Opler et al., 1999; Boubakri et al., 2013), paying dividends (Opler et al., 1999; Boubakri

et al., 2013), cash flow (Opler et al., 1999; Dittmar et al., 2003), working capital ratio

transfer to total assets (Opler et al., 1999; Dittmar et al., 2003; Boubakri et al.,

2013), the ratio of corporate investment to total assets (Opler et al., 1999; Dittmar et al., 2003;

Boubakri et al., 2013).

Empirical studies on the effects of uncertainty and economic conditions on behavior

Cash holdings of enterprises have only appeared recently. Much of the real research

Experiments show a positive relationship between policy uncertainty and firm cash holdings. History

Using data from 35 countries for the period 1988–1999, Pinkowitz et al. (2005) found a relationship

positive relationship between economic policy uncertainty and money holdings. Baum et al (2008)
noted

evidence that fluctuations in macroeconomic conditions affect people's decisions to hold money

manager. Baum et al. (2008) argue that in times of heightened uncertainty, managers

Managers will have difficulty predicting future information, which motivates them to take action

prevent. Thus, macroeconomic uncertainty increases firms' cash holdings and delays

potential investment projects in the context of an unpredictable economy. Baum and plus

(2012) examines the money holdings of companies in the US between 1990–2007 and concludes that
the change

Changing the degree of uncertainty in both corporate and macro decisions has an impact

important to the company's cash holdings. Use the same measures in Baum and add

(2008), Bhaduri and Kanti (2011) examine the impact of macroeconomic policy uncertainty on
decision to hold money by Indian companies, concluding that Indian companies increase their money
holdings

when macroeconomic policy uncertainty increases. Orens and Reheul (2013) measure uncertainty with

A survey called “uncertainty environment” also concluded that managers hold more cash when the

environmental uncertainty increases. Gulen and Ion (2013), Gao et al (2014) noted the relationship

similar direction between economic policy uncertainty and cash holdings in US firms.

Demir and Ersan (2017) examine the impact of economic policy uncertainty on money holdings in four
countries

members of the BRIC group and conclude that increased economic policy uncertainty encourages firms
to hold

keep more money.

Although many empirical studies have found support for a positive relationship between

economic policy uncertainty and money holdings, some recent studies show the opposite. Coins and

(2016) study the relationship between uncertainty in political policy and money holdings

firms in the Chinese market and shows that the firm holds less cash in

increased policy uncertainty. The reason mentioned is that these companies do not want to hold

a lot of money to avoid harassment, corruption from state agencies, or maybe in the period

Immediately after the crisis, companies make less money from their operations resulting in cash
accumulation

accumulation may be slightly reduced.

Wright's study (2015) again provides mixed evidence for the effect of uncertainty

with cash holdings when considering a firm's cash holding behavior under short-term uncertainty

and long term. Wright (2015) finds money holdings to be positively correlated with long-term
uncertainty

short-term but negatively correlated with short-term uncertainty. Inconsistent relationship

This is explained by the fact that in the short term, when the market has adverse situations due to
uncertainty

in policy causes the company to hold less cash because it earns less, however,

In the long run, the company will delay investing and increase cash holdings waiting until the uncertainty
passes
Away, leading to an increase in cash reserves.

In a recent study by Al-Thaqeb et al (2019) on the relationship between uncertainty in

Economic policy and corporate money holdings in 21 countries. Al-Thaqeb et al (2019) only

Found a positive relationship in the sample in the US and emerging markets. However, termites

The relationship is opposite in the population sample. Al-Thaqeb et al (2019) also give evidence

That the negative effect in the relationship between economic policy uncertainty and money holdings
comes from

Developed countries other than the US are included in the sample. According to Al-Thaqeb et al (2019),

The possible transmission channel is through dividends because dividends increase as uncertainty
increases. Thing

This is consistent with the results of Attig et al (2018) when showing a positive relationship between
uncertainty

Economic policy and dividend payment of the company.

2.3. Research hypothesis

As discussed in the previous section, according to financial constraint theory and real options theory,
any

Incremental economic policy decisions increase cash holdings in firms (Gulen & Ion, 2013), in
On the other hand, agency theory suggests that economic policy uncertainty increases in firms

There is a serious conflict between shareholders and management that reduces cash (Ndou &
Mokoena,

2019), besides, the decline in corporate profits during the period of increased policy uncertainty also

Can make firms have less cash (Pástor & Veronesi, 2012). On the real side

Experience, previous studies also recorded a positive relationship (Demir & Ersan, 2017;

Bhaduri & Kanti, 2011; Gao et al., 2014…) and the negative relationship (Xu et al., 2016;

Wright, 2015; Al-Thaqeb et al., 2019…) between policy uncertainty and public money holdings

Company. Therefore, this paper argues that the influence of China’s economic policy uncertainty on

Keeping cash in companies in Southeast Asia is an empirical problem. Therefore, the authors
hypothesized

The research theory is as follows:

Hypothesis: China’s economic policy uncertainty has an impact on money holding decisions

Companies in Southeast Asia.

3. Data, variable definition and research model

3.1. Data
The research sample includes 1,866 companies listed on stock exchanges of 6 countries

Southeast Asia is: Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam. Data is

Extracted from the company’s annual financial statement data from Thomson’s database

Reuters Datastream.

The study sample did not include:

• Financial companies and public utility companies;

• Companies with total assets less than or equal to zero;

• Do firms have cash and smaller cash equivalents;

• Do companies pay smaller cash dividends.

The data used to calculate the degree of economic policy uncertainty are taken from the volatility index
data source

World Uncertainty Index (WUI)1. Data on economic growth (GDP) is taken from the base

data from the International Monetary Fund - IMF2. The sample period is from 2010 to 2018, which is
the period

period during which the companies in the sample have relatively complete data in their annual financial
statements.

Table 1.

Number of firms and average gross domestic product growth rate for each country in the sample

Country code Country name Number of companies

Gross product growth rate

domestic average (%)

Indonesian IDN 239 6.52

MYS Malaysia 224 6.64

PHL Philippines 75 6.95

SGP Singapore 286 7.02

THA Thailand 503 5.20

VNM Vietnam 539 8.62

Total 1,866

3.2. Variable definition

3.2.1. Dependent variable

According to Opler et al. (1999), Dittmar et al. (2003), Harford et al. (2008), the secondary variable

belonging – the company's cash holdings (CASH), as measured by the ratio of cash and cash equivalents

money to total net assets. In which, total net assets is total assets excluding cash and other items

cash equivalents.

3.2.2. Main independent variable – Uncertainty in economic policy

In recent years, there have been studies examining the impact of financial uncertainty

the business itself in general and the decision to hold the company's money in particular. The
measurement of irregularities

Policy definitions are commonly used in three ways. Specifically:

- Firstly, the most traditional way and used by many previous studies is the use of

macroeconomic variable or stock market volatility to measure own uncertainty

book. Some good examples for this measure are: Pinkowitz et al. (2005) use the variable

stock market movements to measure uncertainty in economic policy; Baum et al

(2008), Bhaduri and Kanti (2011) use volatility in macroeconomic conditions to measure volatility

market determination.

- Second, measuring policy uncertainty is done through a survey. Method

This is used by several studies, such as Orens and Reheul (2013) using a survey that

named “Environmental Uncertainty (EU)” to measure market uncertainty,

The high level of uncertainty in this survey implies the firm’s inability to evaluate
Exact external environment or future changes.

- Third, is a measure that has emerged recently but has a significant impact, that is measurement

Through the Economic Policy Uncertainty (EPU) index built

Developed by Baker et al (2016). Demir and Ersan (2017) or Gulen and Ion (2013) are a few studies

Case studies using this measure. This measure was also inherited and developed into

More consistent metrics. Example inherited from Baker et al. (2016), Ahir et al. (2018) have

Develop and publish the World Uncertainty Index (WUI) to measure the economic uncertainty of

143 countries in the world. The WUI index is measured with a sample that includes a large number of
countries

Countries and comparable levels of economic policy uncertainty across countries.

This article uses the WUI index to measure uncertainty in China’s economic policy

(WUI_CHN) because of its similarity with the WUI index measuring uncertainty in policy

Economy of Southeast Asian countries. Besides, the authors also use

EPU_SCMP and EPU_ML indexes, which are indicators of economic policy uncertainty in China

Countries as alternative measures to test the robustness of study results.

China WUI Index (WUI_CHN) is calculated based on quarterly data of Ahir and

(2018), the author of this article recalculated this data to obtain an annual value of only

WUI_CHN number by summing up the number of words “Uncertainty” (and its variants) appearing in
the

Country report by the Economist Intelligence Unit (EIU) for one year divided by the total

Number of words in that year’s EIU report and multiply by one thousand (1,000).

EPU_SCMP and EPU_ML are indicators of uncertainty in economic policy

Of China is calculated by year from the set of indexes provided by Baker et al (2013),

Davis et al (2019). EPU_SCMP and EPU_ML have the same calculation principle that is based on the
ratio

The percentage of articles that mention uncertainty in the total number of journal articles, differing only
in the source

Fox. EPU_SCMP is based on The South China Morning Post (the leading English-language newspaper of

Hong Kong); EPU_ML is based on two famous Chinese newspapers, The Renmin Daily

People) and The Guangming Daily (Quang Minh Daily). Baker and monthly dataset

Et al (2013), Davis et al (2019) were recalculated by year by taking the average of

The months of the year.

Table 2 reports the results of descriptive statistics and correlation coefficients between the indexes
WUI_CHN,

EPU_SCMP and EPU_ML measure uncertainty in China’s economic policy. Regarding the calculation,

EPU_SCMP and EPU_ML are based on the ratio between the number of articles that address the issue
of uncertainty in the political

Economic books in China on the total number of journal articles while Wui_chn is based on the ratio of
available words

Implies “indeterminacy” on the total word count of the article. Therefore, EPU_SCMP is the mean
EPU_ML

And larger standard deviation than WUI_CHN. Besides, due to the similarity in calculation methods,

EPU_SCMP and EPU_ML have a much higher correlation (0.848) than the correlation coefficient
between the two

This index with WUI_CHN of –0.245 and 0.007 respectively.

Table 2.

Descriptive statistics and correlation coefficients of China’s economic policy uncertainty measures

Variable Name Value

Medium

Differrence
Standard

Value

Smallest

Value

Biggest

Correspondence coefficient

Related to

EPU_SCMP

Coefficient

Soy sauce

Related to

EPU_ML

WUI_CHN 0.149 0.061 0.080 0.241 –0.245 0.007

EPU_SCMP 235,769 123,384 98,888 460,470 0.848

EPU_ML 140,955 57.9736 92,114 277,813

3.2.3. Control variables

Based on Opler et al., (1999), Dittmar et al. (2003), Boubakri et al. (2013), Demir

And Ersan (2017), the control variables included in the regression model include:

WUIjt: Uncertainty in the economic policy of country j (where company i is located) at year t, calculated
from the data.

Quarterly data of The World Uncertainty Index (WUI) by Ahir et al (2018) and is

The authors recalculate by year, similar to the calculation of the annual uncertainty index for China;

INVit: Investment in company i in year t is calculated by the formula (capital expenditure in year t / total
assets in year t–1);

MTBit: Ratio of market price to company books i year t, measured by the formula [(number of shares)

Outstanding notes x closing price + total debt) / total assets of the previous period];

LEVit: The debt-to-asset ratio of the company i year t, measured by the ratio of total debt to total
assets;

ROAit: The rate of return on assets of the company i year t, measured as the ratio between net income

And total assets of the company;

DIVit: Dividend payout ratio of company i year t, measured as the ratio between cash dividend and
earnings

Net of the company;

WCit: Working capital ratio of company i year t, measured by the formula [(total current assets

– Total short-term liabilities – cash and cash equivalents) / (total assets – cash and equivalents)

Cash equivalents)];

SIZEit: Size of company i year t, measured by the natural logarithm of total assets of the company.

To control for macroeconomic policy factors in the model in many countries, the authors assume

Using the gross domestic product growth variable of country j year t (GDPjt = GDPjt / GDPjt–1 –1).

3.3. Models and estimation methods

To estimate the impact of China’s economic policy uncertainty on money holdings of

Southeast Asian companies, the authors use Model (1) below:

CASHit = αi + β1WUI_CHNt–1 + β2WUIjt + β3INVit +β4SIZEit + β5MTBit + β6WCit + β7LEVit + β8DIVit

+ β9ROAit + β10GDPGjt + it

(first)
In there,

CASHit: Cash holding ratio of company t;

WUI_CHNt-1: Uncertainty in China’s economic policy year t-1;

WUIjt: Uncertainty in the economic policy of country j (where company i is located) at period t;

INVit: Investment period t of company i;

SIZEit: Period size t of company i;

MTBit: Ratio of market price to book price period t of company i;

WCit: The ratio of working capital period t of company i;

LEVit: The debt-to-asset ratio of company i in period t;

DIVit: The rate of dividend payment period t of company i;

ROAit: Return on assets period t of company i;

GDPGjt: Gross domestic product growth of country j year t; and

εit : error of the estimate.

With the research hypothesis built above, the authors expect uncertainty in the main

China's economic policies have an impact on the money holding decisions of Eastern companies

South Asia, that is, β1 is non-zero and statistically significant.

Regarding the estimation method, first of all, the authors regress Model (1) by estimating method

panel data with fixed effects (FE). Variance tests and

Autocorrelation by Wald test and Wooldridge test were performed. If the regression hypotheses

This rule is violated, the authors will use a model that recalculates the standard error of the regression
coefficient

by controlling for fixed effects over time and correcting for standard errors at the firm level

in the FE model. Besides, the authors also consider the regression results of Model (1) by

Generalized Least Squares (GLS) method to solve the problem of

correlation and variance change.

4. Research results
4.1. Descriptive statistics

Table 3 reports the number of observations, the mean, the standard deviation, the minimum value, and
the large value

of each variable in the sample. The average cash holding ratio of companies is 10.7%. The
disagreement

China's economic policy determinations have a mean of 0.149 and a volatility of 6.1%.

The uncertainty in economic policy of the group of Southeast Asian countries is 0.123 on average, with
a variation of

growth rate is 8.8%, higher than China. Average ratio of investment to total assets of companies in

sample is 5.7%, the highest is 53.8%. The natural logarithm of the company's total assets ranges from
15,465

to 21,319, with an average of 18,261. Market-to-book ratio of average firms

is 1,090 times, the highest is 3,511 times and the lowest is 0.273 times. The average working capital
ratio is

13.3%. The average debt ratio is 50.1%, the highest is 1,121 times the asset size. Average dividend
payout ratio

average is 52.8% of total net income. The average net income to total assets is 4.0%.

Table 3.

Data Descriptive Statistics3

Quantity

Observe

Value

Medium

Differrence
Standard

Value

Smallest

Value

Biggest

CASH 13,960 0.107 0.136 0.000 0.486

WUI_CHN 31,544 0.149 0.061 0.080 0.241

WUI 31,544 0.123 0.088 0.000 0.347

INV 27,063 0.057 0.084 0.000 0.538

SIZE 28,809 18,261 1,607 15,465 21,319

MTB 26,044 1,090 0.850 0.273 3,511

WC 13,840 0.133 0.224 –0.336 0.547

LEV 27,857 0.501 0.271 0.095 1.121

DIV 17.918 0.528 0.465 0.000 1,751

ROA 28.806 0.040 0.072 –0.134 0.188

Table 4 describes the correlation coefficients between the variables. Except for the correlation
between uncertainty in the main

The country’s economic policy (WUI) and gross domestic product (GDPG) growth are correlated in

Level 49.0%, the remaining variables have relatively small correlation (from 1.1% to 30.9%). Holding
rate

Corporate money is negatively correlated with China’s economic policy uncertainty, uncertainty

Economic policy of the host country, investment, firm size, debt leverage, GDP growth and future

Positively related to the remaining variables.

Table 4.

Correlation between variables

CASH WUI_CHN WUI INV SIZE MTB WC LEV DIV ROA

WUI_CHN –0.004

WUI –0.124 –0.233

INV –0.080 0.071 0.026

SIZE –0.165 –0.016 0.021 0.043

MTB 0.049 –0.024 0.181 0.310 0.177

WC 0.011 –0.027 0.020 –0.247 –0.281 –0.048

LEV –0.276 0.081 –0.052 0.203 0.298 0.032 –0.422

DIV 0.015 –0.038 0.038 –0.056 –0.109 –0.003 0.042 –0.116

ROA 0.221 0.090 0.013 0.129 –0.109 0.448 0.190 –0.286 –0.099

GDPG –0.006 0.341 –0.490 0.014 –0.125 –0.132 0.012 0.128 –0.064 0.042

3 The authors also made statistical estimates for the sample after removing the missing data and found
the best results.

Consistent with the results across the sample.

4.2. Empirical results on the effect of China’s economic uncertainty on money holdings

Of companies in Southeast Asia

Table 5 reports the results of the fixed effects (FE) regression and the generalized least squares
regression

(GLS). Column (1) presents the results of univariate FE regression, while the results of FE regression
have control variables

Control and standard error correction are presented in column (2), univariate GLS regression results are
presented
 Presented in column (3), and the results of GLS regression with the model with control variables in
column (4). We can

It is found that China’s economic policy uncertainty has a negative impact on public cash holdings

Company, represented by the sign of the regression coefficient of China’s economic policy uncertainty
variable (WUI_CHN)

Is negative and statistically significant consistently across all column regressions (1), (2), (3), and (4).

Table 5.

FE and GLS regression results for Model (1)

Univariate FE FE with variables

Control and effect

Standard error correction

Univariate GLS GLS has variables

Control

(1) (2) (3) (4)

WUI_CHN –0.622***

[–6,160]
–0.628***

[–3,750]

–0.016**

[–2,430]

–0.039***

[–9,200]

WUI –0.001

[–0.060]

–0.040***

[–8,200]

INV –0.101***

[–4,420]

–0.128***

[–46,400]
SISE –0.020**

[–2,340]

–0.010***

[–9,790]

MTB 0.018***

[4,390]

0.021***

[41,880]

WC –0.277***

[-12,950]

–0.301***

[–87,890]

LEV –0.082***

[–6,020]

–0.054***
[–30,290]

DIV 0.003

[1,240]

–0.002***

[–2,590]

ROA 0.379***

[8,010]

0.226***

[23,330]

GDPG –0.196**

[–2,070]

–0.200***

[-12,040]

Mai Thi Thanh Tra & Tran Thi Hai Ly (2020) JABES 31(8) 25–50

40

Univariate FE FE with variables

control and effect

standard error correction

Univariate GLS GLS has variables

control

(1) (2) (3) (4)

Incident impact control

company designation

Yes Yes No No

Incident impact control

timing

Yes Yes No No

Wrong correction

standard number

Yes Yes No No

Number of observations 13,960 8,034 13,750 7,690

Factor of determination R2 0.007 0.148

Note: *,**,*** correspond to the statistical significance levels of 10%, 5% and 1%, respectively;

The numbers in square brackets [ ] in columns (1) and (2) are t-statistics, in columns (3) and (4) are z-
statistics.

More specifically, the results of univariate analysis in columns (1) and (3) show uncertainty in economic
policy

China's economy has a negative effect on money holdings, with the coefficients in each regression being
–

0.622 and –0.016 and 1% and 5% statistical significance. When the control variables are added and the
standard error

adjusted, the regression coefficient for the uncertainty variable in China's economic policy is still

has a negative sign and remains at the 1% significance level (column 2). Regression coefficient of the
uncertainty variable in the policy

China's economy (WUI_CHN) in the GLS model has control variables in column (4), although there is a
decrease
 compared with the FE model in column (2), but it is still stable in sign and remains significant at 1%
level. Result

This consistency is strong evidence for the opposite effect of policy uncertainty

China's economy on the money holding policy of companies in Southeast Asia. Conclude

This result is consistent with some previous empirical studies on the effects of policy uncertainty

economic decision to hold money of Chinese companies (Xu et al., 2016), but contrary

In contrast to the results of empirical studies on samples of companies in the US (Gulen & Ion, 2013;
Gao &

et al., 2014), India (Bhaduri & Kanti, 2011).

For the control variables, the results in columns (2) and (4) show that money holdings are positively
related

positively related to investment opportunity (MTB) and return on assets (ROA), negatively related to

remaining variable. Control variables are all statistically significant at 1% level after treating the same
problem

correlation and variance (column 4). In particular, the variables of debt ratio (LEV), working capital ratio
(WC)

and firm size (SIZE) are control variables that are often found to have a negative effect on

decision to hold money in previous studies of Opler et al. (1999), Boubakri and

associates (2013). Research by Opler et al (1999), Boubakri et al (2013) also recorded

find a positive relationship between a firm's market-to-book ratio (MTB) and holdings

money in the company. Therefore, it can be said that the influence of the traditional control variables
in the study

This study is consistent with previous studies on the factors that explain the proportion of money
holdings of

enterprise.

There are several ways that firms hold less money in the face of economic policy uncertainty

increase. Specifically:

Increased economic policy uncertainty impedes growth, leaving businesses with little profit

more profitable and reduces the ability and need to maintain large amounts of cash (Pástor & Veronesi,

2012; Gao et al., 2014). This is consistent with the sign of the positive regression coefficient in the
relationship

between return on assets (ROA) and cash holdings are recorded in columns (2) and (4) in
In Table 5, the less profitable a company is, the lower the cash-to-cash ratio. Policy uncertainty

The economic situation exacerbates the operating risks of the business, so the expected earnings in

both future and earning opportunities are reduced (Chen et al., 2017), and to keep the company
running

If the situation is stable, the company is likely to have to reduce its cash holdings.

Based on the conflict theory between managers and shareholders, the authors argue that in economies

different, with different corporate cultures, the degree of conflict between managers and shareholders
can

There may be differences, leading to different responses by firms under uncertainty

incremental policy. As policy uncertainty increases, in firms where conflicts of interest exist

serious relationship between shareholders and managers, while the mechanism to protect
shareholders' interests is still weak, the

Shareholders through the board of directors can request managers to reduce money hoarding, thereby
limiting the

wasteful spending. Or as in some Asian countries, typically China, the reduction

Holding cash also helps businesses hide assets to minimize losses due to corruption from the
government

local authority4 (Xu et al., 2016) during a period of increased policy uncertainty. This policy

This can be done through measures such as increasing dividend payments (Attig et al., 2018).

Consistent with the above argument, the regression results in column (2) and column (4) Table 5 record
the regression coefficient

positive at the 1% significance level between the return on assets (ROA) and the firm's cash holdings

shows a positive relationship between a firm's operating profit and cash holdings. Regression
coefficient

of the negative DIV variable in column (4) shows the negative relationship between dividend payment
(DIV) and holding

cash in the business, the policy of increasing dividend payments to shareholders reduces the amount of
cash in reserve

at the enterprise. To examine these two relationships more deeply in terms of economic policy
uncertainty

economic growth, the authors will in turn add interactive variables to Model (1). Regression results

are presented in Table 6. Specifically, in column (2) of Table 6, an interaction variable (WUI_CHN x
DIV) between uncertainty in China's economic policy (WUI_CHN) and dividend payments in the period

t of company i (DIV). In column (3) of Table 6, there is an interaction variable (WUI_CHN x ROA)
between any

China's economic policy (WUI_CHN) and the company's rate of return on assets

period t (ROA).

Table 6.

FE regression results on the impact of dividend policy and profit rate on the firm's cash holdings

in the context of China's economic policy uncertainty.

Basic model

Model with variables

Interactive

WUI_CHN x DIV

Model with variables

Interactive

WUI_CHN x ROA

(1) (2) (3)

WUI_CHN –0.628***

[–3,750]

–0.628***

[–3,750]

–0,520***

[–3,070]

WUI –0.001

[–0.060]

–0.001

[–0.080]

–0.002

[–0.080]

INV –0.101***
[–4,420]

–0.101***

[–4,420]

–0.101***

[–4,440]

SIZE –0.020**

[–2,340]

–0.020**

[–2,340]

–0.020**

[–2,320]

MTB 0.018***

[4,390]

0.018***

[4,380]

0.019***

[4,600]

WC –0.277***

[-12,950]

–0.277***

[-12,950]

–0.275***

[-12,900]

LEV –0.082***

[–6,020]

–0.082***

[–6,020]

–0.083***

[–6,110]
DIV 0.003

[1,240]

0.004

[1,310]

0.003

[1,250]

ROA 0.379***

[8,010]

0.379***

[8,000]

0.254***

[3,940]

GDPG –0.196**

[–2,070]

–0.197**

[–2,080]

–0.194**

[–2,050]

WUI_CHN x DIV –0.001

[–0.790]

WUI_CHN x ROA 0.661***

[2,660]

Crash impact control

company designation

Yes Yes Yes Yes

Crash impact control

timing

Yes Yes Yes Yes

Mai Thi Thanh Tra & Tran Thi Hai Ly (2020) JABES 31(8) 25–50

43

Basic model

Model with variables

Interactive

WUI_CHN x DIV

Model with variables

Interactive

WUI_CHN x ROA

(1) (2) (3)

Wrong correction

Standard number

Yes Yes Yes Yes

Number of observations 8,034 8,034 8,034

Factor of determination R2 0.148 0.148 0.150

Note: *,**,*** correspond to the statistical significance levels of 10%, 5% and 1%, respectively;

The number in square brackets [ ] is the t-statistic.

Regression results in column (2) Table 6 shows the interaction variable between economic policy
uncertainty of

China and dividends (WUI_CHN x DIV) have no impact on the decision to hold public cash

As expected. However, in column (3), the regression coefficient of the variable WUI_CHN still has a
negative sign and

The interactive variable WUI_CHN x ROA is also negative. That is, China’s economic policy uncertainty

Countries reduce money holdings. However, companies with high return on assets (ROA)

Then the negative effect of uncertainty on cash holdings will decrease, conversely, if the firm has a

If return on assets (ROA) is negative, the higher the uncertainty, the less cash accumulation will be

Stronger. This result supports the argument that increased economic policy uncertainty can

Growth, making businesses less profitable and reducing the ability and

The need to maintain a reserve of money (Pástor & Veronesi, 2012; Gao et al., 2014).

In addition, in the above models, the results of gross domestic product growth are recorded
(GDPG) is negatively related to the decision to hold money – supporting the main uncertainty view

Economic policies hinder growth, reduce the amount of cash stored in enterprises.

With the above results, this paper draws the conclusion that uncertainty in economic policy

Of China reduces the money holdings of Southeast Asian companies. Deeper analysis

Shows that uncertainty in economic policy in the event of an impediment to growth may depress

Reduce the profits of the business, resulting in the business having less cash to hoard.

Check the robustness of the research results

To check the robustness of the research results, this paper uses two uncertainty measures

China’s economic policy instead of WUI_CHN index in Model (1), that is: Index

EPU_SCMP and EPU_ML. Details of the calculation and significance of these indicators are presented in

Section 3.2.2.

Table 7.

Regression results Model (1) with two alternative measures for uncertainty in policy

China’s economy

FE regression results GLS . regression results

(1) (2) (3) (4)

EPU_SCMP –0.0000***

[–3,750]

–0.000***

[–6,800]

EPU_ML –0.0000***

[–3,750]

–0.000***

[–6,800]

WUI –0.001

[–0.060]

–0.001

[–0.060]

–0.055***

[–18,520]
–0.047***

[-11,870]

INV –0.101***

[–4,420]

–0.101***

[–4,420]

–0.074***

[–8,290]

–0.078***

[–10,590]

SIZE –0.020**

[–2,340]

–0.020**

[–2,340]
–0.009***

[–11,360]

–0.015***

[-12,320]

MTB 0.018***

[4,390]

0.018***

[4,390]

0.010***

[7,860]

0.011***

[10,170]

WC –0.277***

[-12,950]

–0.277***
[-12,950]

–0.148***

[–29,060]

–0.194***

[–37,000]

LEV –0.082***

[–6,020]

–0.082***

[–6,020]

–0.047***

[–18,290]

–0.036***

[-11,720]

DIV 0.003
[1,240]

0.003

[1,240]

0.001

[0.880]

0.001

[1,510]

ROA 0.379***

[8,010]

0.379***

[8,010]

0.249***

[15,740]

0.214***

[14,800]
GDPG –0.196**

[–2,070]

–0.196**

[–2,070]

–0.143***

[–5,710]

–0.137***

[–6,780]

Impact control

Fixed company

Yes Yes No No

Impact control

Fixed time

Yes Yes No No
Wrong correction

Standard number

Yes Yes No No

Number of observations 8,034 8,034 7,690 7,690

Factor of determination R2 0.148 0.148

Note: *,**,*** correspond to the statistical significance levels of 10%, 5% and 1%, respectively

The numbers in square brackets [ ] in columns (1) and (2) are t-statistics, in columns (3) and (4) are z-
statistics.

The regression results in Table 7 show that the study results are stable when using other measures

(EPU_SCMP and EPU_ML) replace the WUI_CHN index in the measure of economic policy uncertainty of

China. The EPU_SCMP, EPU_ML and WUI_CHN indexes differ fundamentally in the origin of the

Report. EPU_SCMP is derived from the South China Morning Post newspaper, EPU_ML is derived from

Two newspapers People’s Daily and Quang Minh Daily while WUI_CHN is derived from newspaper

Country report by the Economist Intelligence Unit (EIU). EPU_SCMP and EPU_ML are also compatible

Less dong when compared with the WUI index, which controls the effect of economic policy uncertainty
in
Host country. The regression results are quite strong, showing a consistent negative relationship
between holding

Corporate money from 6 Southeast Asian countries and economic policy uncertainty from China.

In addition, other control variables such as economic policy uncertainty in the host country and other
variables

Remaining in the model mostly unchanged sign. The authors conclude, the research results are solid

When using alternative estimation methods in the model with alternative independent variables.

Investing and holding money under the impact of China’s economic policy uncertainty

According to real options theory, Gulen and Ion (2013) argue that in the face of major uncertainty

Economic policy increases, the company will benefit more if some investment plans are delayed, the
mechanical impact of

This action will increase the amount of cash stored. This is also the relationship that the authors have

As noted in the regression results in column (2) and column (4) of Table 5, corporate investment has a
negative relationship

With cash, the β3 of Model (1) has a negative sign in all the regression models presented above. To

Closer examination of the relationship between investment and corporate money holdings under the
influence of major uncertainty
In the book, the authors add the interaction variable of investment and economic policy uncertainty of

China enters Model (1) and obtains Model (2) as follows:

CASHit = αi + β1WUI_CHNt–1 + β2WUIjt + β3INVit + β4(WUI_CHNt–1 x INVit) +β5SIZEit + β6MTBit

+ β7WCit + β8LEVit + β9DIVit + β10ROAit + β11GDPGjt + it

(2)

In which, (WUI_CHN x INV) is the interaction variable between China’s economic policy uncertainty

And invest in company i year t. The remaining independent and dependent variables are still the same
as in Model (1)

Presented above. In the face of increased economic policy uncertainty, the company delays some
investments

The project causes the accumulated cash to increase. However, according to the results presented
above, uncertainty

High economic policy also reduces the amount of cash of the company due to the deterioration
situation increases

Growth and profits. Therefore, the authors predict that economic policy uncertainty can reduce

Negative effect of investment on money holding, that is, β4 has a positive expected sign.

Table 8.
 Regression results with the interaction variable between China’s economic policy uncertainty and public
investment

Company in 6 Southeast Asian countries.

Regression results

FE Model (1)

Regression results

FE Model (2)

GLS . regression results

Model (1)

GLS . regression results

Model (2)

(1) (2) (3) (4)

WUI_CHN –0.628***

[–3,750]

–0.567***
[–3,350]

–0.039***

[–9,200]

–0.076***

[–8,030]

WUI –0.001

[–0.060]

–0.003

[–0.140]

–0.040***

[–8,200]

–0.096***

[-12,320]

INV –0.101***

[–4,420]
–0.200***

[–4,440]

–0.127***

[–46,400]

–0.082***

[–4,710]

WUI_CHN x INV 0.546**

[2,530]

0.179**

[2,160]

SIZE –0.020**

[–2,340]

–0.019**

[–2,180]
–0.010***

[–9,790]

–0.010***

[–16,360]

MTB 0.018***

[4,390]

0.018***

[4,410]

0.021***

[41,880]

0.007***

[5,140]

WC –0.277***

[-12,950]

–0.277***
[–13,020]

–0.301***

[–87,890]

–0.128***

[–27,720]

LEV –0.082***

[–6,020]

–0.083***

[–6,070]

–0.054***

[–30,290]

–0.083***

[–23,630]

DIV 0.003
[1,240]

0.003

[1,200]

–0.002***

[–2,590]

0.001

[0.870]

ROA 0.379***

[8,010]

0.378***

[8,030]

0.226***

[23,330]

0.260***

[13,960]
GDPG –0.196**

[–2,070]

–0.192**

[–2,040]

–0.200***

[-12,040]

–0.315***

[–8,970]

Impact control

Fixed company

Yes Yes No No

Regression results

FE Model (1)

Regression results

FE Model (2)
GLS . regression results

Model (1)

GLS . regression results

Model (2)

(1) (2) (3) (4)

Impact control

Fixed time

Yes Yes No

Wrong correction

Standard number

Yes Yes No No

Number of observations 8,034 8,034 7,690 7,690

Factor of determination R2 0.148 0.150

Note: *,**,*** correspond to the statistical significance levels of 10%, 5% and 1%, respectively;
 The numbers in square brackets [ ] in columns (1) and (2) are t-statistics, in columns (3) and (4) are z-
statistics.

Table 8 presents the regression results for FE (column (1) and column (2)) and GLS (column (3) and
column (4)) to consider

Impact of investment on money holdings in the context of economic policy uncertainty. Conclude

The regression results of Model (2) in Table 8 are consistent with the author’s arguments and
expectations. Β4

(WUI_CHN x INV) has a positive sign while β3 (INV) has a negative sign, regression coefficient β3 (INV) in
column (4)

Table 5 (–0.127) has a larger value than the regression coefficient in column (4) Table 8 (–0.082) shows
the degrading effect

Reduce the degree of inverse relationship between investment and money holdings.

Regression results in all four columns in Table 8 are significant at most of the 1% level, except for a few
cases

Significance at the 5% level. Control variables have constant sign and are consistent with previous
results,

Demonstrate the robustness of the research results.

5. Conclusion

This study uses the World Uncertainty Index (WUI) of Ahir et al (2018) to
Calculate the annual degree of uncertainty in China’s economic policy and consider the effect

Its influence on the money holding decisions of companies in 6 small economies in the Southeast region

Asia has close economic ties with China. The research sample includes 1,866 companies in the period

Period 2010–2018. The research results show that the increase in uncertainty in the economic policy of

China reduces cash holdings in Southeast Asian companies. This relationship

Is consistent after controlling for the fundamental factors likely to influence the decision to hold money

Firm and control for firm and year-over-year fixed effects. At the same time, the research results

The study is also strong when considering the regression assumption violations by GLS model and when
replacing the random variable

China’s economic policy determination by different measurement methods. Reason

Of the reduction of money holdings is said to be the uncertainty of increased economic policy hindering
growth, making

Businesses make less profit and therefore have less cash on hand. This result is consistent

This is consistent with the experimental results in previous studies conducted in China.

Research results of the article provide evidence for the argument of real options theory,

In the context of increased economic policy uncertainty, the company delays some projects and
mechanical impacts
Causes cash accumulation to increase, however, in the context of increased economic policy
uncertainty, due to a recession

Decrease in profits causes the company to earn less, so the cash accrual effect of deferring investment

Investment was significantly reduced.

Finally, the authors’ research results reinforce the evidence for further expansion

A factor that significantly affects the company’s decision to hold money, in addition to the factors that
have been

Suggested by many previous scholars. Therefore, the results of this study imply that economic
environment factors

Business has a significant impact on the company’s financial activities, in the context of international
economic integration

The business environment of enterprises is not only affected by domestic macroeconomics but also

Are also affected by the policies of the dominant country. Specifically here is China – the country with

Dominant trade and investment relationship with the territory in which the company operates –
countries in the region

Southeast Asia. Therefore, the authors recommend that administrators and policy makers should keep

Pay attention to the policies of the dominant country when planning corporate financial strategies,
especially for

With countries that are reaching out to influence the rest of the world, bringing a lot of instability
Potential like Chinan