LAUSR

Abstract This study investigates the impact of oil price uncertainty on the cash holdings of firms. Using a sample of the Chinese stock market for the period from 2007 to 2016, our empirical results show that the impact of oil price uncertainty on cash holdings exhibits an inverted U-shape. Cash holdings increase with oil price uncertainty, but after a point, this impact becomes negative. Moreover, we find that the effect of oil price uncertainty is mitigated as the market value of firms increases. Meanwhile, state-owned companies are less impacted by oil price uncertainty. The results are robust to various tests and alternative explanations. Our findings are consistent with real options theory and pecking order theory.