“Corporate Cash under Populist Leadership: A Tale of Two Variants”

Thomas Lambert

Erasmus University Rotterdam

Abstract: How do firms manage liquidity in populist-led countries? Using close elections involving populists, we test two hypotheses: populism prompts firms to either (i) increase cash holdings due to political risk and economic nationalism, or (ii) reduce cash reserves due to business friendliness. We find contrasting outcomes based on the variant of populism: right-wing populism leads firms, particularly those with valuable investment opportunities and volatile cash flows, to reduce cash holdings, while left-wing populism drives firms to expand cash reserves. We also examine the consequences for corporate investment and employment. Our findings provide new insights into the implications of populism for firm-level outcomes and corporate finance