Corporate investment under uncertainty: strategic role of cash holdings in the emerging markets’ economy

Purpose This study examines the strategic role of cash holding in the relationship between global uncertainty and corporate investment in emerging markets. Design/methodology/approach This study employs a two-step system GMM model to examine dynamic relationships. The sample consists of 20,020 non-financial firms across 23 emerging countries from 2004 to 2023. Additionally, to enhance the robustness and implications of the results, sectoral and sub-sample analyses based on firm-specific characteristics performed. Findings The maintenance of cash reserves positively influences corporate investment during periods of uncertainty. Ample cash holdings mitigate risk and enhance opportunistic investments in cyclical sectors, which are highly sensitive to market volatility and economic downturns. Conversely, defensive sectors experience less impact from uncertainty; however, elevated cash reserves within these sectors can impede opportunistic investments during such times. Larger firms with significant liquidity are generally less susceptible to global uncertainties, particularly in emerging markets. Originality/value The study explores the emerging markets over 2 decades, covering the two prominent economic downturns that have majorly impacted corporate decisions. It highlights the critical role of cash in navigating the global shocks and facilitating investment during economic declines. Sectoral and sub-sample analyses provide crucial insights for investors to assess the company’s risk profile.