Analyzing the effects of terrorist attacks on the value of cash holdings

Abstract This study focuses on terrorist attacks as exogenous shocks on business uncertainty, specifically whether terrorist attacks affect the value of a firm's cash holdings. We find that firms with excess cash have higher cash holding values when a terrorist attack occurs near their locations; these results also hold for the excess stock returns of firms that increased their cash holdings. Furthermore, the results strengthen when firms face more financial constraints, fewer agency conflicts, and better investment opportunities. Overall, this study suggests that cash is a more valuable asset under the circumstance with high uncertainty such as terrorist attacks.