Economic Policy Uncertainty, Capital Expenditure and Corporate Cash Holdings Dynamics in South African Listed Firms

This study investigates the relationship between economic policy uncertainty (EPU) and corporate cash holdings, focusing on non-financial firms listed on the Johannesburg Stock Exchange (JSE). It aims to understand how South African firms adapt their financial strategies in response to EPU, addressing a gap in empirical research within developing economies. The study uses a sample of 184 non-financial firms listed on the JSE to examine the impact of EPU on corporate cash holdings, exploring the mediating role of capital expenditure and the moderating role of financial constraints. The findings reveal a positive relationship between EPU and corporate cash holdings, mediated by capital expenditure. The results further show that financial constraints do not significantly moderate this relationship. This supports the real options theory over the pre-cautionary savings theory in explaining the observed link between EPU and cash holdings. The study offers insights for corporate managers and policymakers on how firms in developing economies adjust their financial policies in response to heightened economic uncertainty, informing strategic decisions in uncertain policy environments. This research contributes to the limited literature on EPU in emerging markets by providing evidence from South Africa. It advances understanding of firm behaviour under uncertainty and supports theoretical perspectives that prioritize investment deferral options over precautionary motives in cash holding decisions.