Growing dynamics of cash holding and financial leverage with moderating effect of firm size and economic policy uncertainty: evidence from manufacturing firms of India and the USA

Corporate cash holdings are essential for maintaining financial flexibility. However, there is limited evidence on how financial leverage influences cash holdings under macroeconomic uncertainty and firm-specific characteristics across different financial environments. Therefore, this study examines the association between cash holdings and financial leverage grounded in pecking order and trade-off theories, with moderating roles of economic policy uncertainty and firm size. Using the balanced panel of 206 listed manufacturing firms from India and the United States during 2014–2025, the study employs a fixed-effects model, and potential endogeneity and robustness is reported using the Generalized Method of Moments. Findings reveal that financial leverage negatively affects cash holdings (β= −0.00075, p < 0.01). Economic policy uncertainty positively moderates cash holdings (β = 0.00791, p < 0.01). Firm size weakens the association between cash holding and financial leverage. Additionally, Financial Leverage exhibits a negatively significant effect on cash holdings among US firms, supporting the estimates of pecking order and trade-off theories. In contrast, the relationship is insignificant in India, suggesting that institutional and financial market characteristics influence firms’ liquidity decisions differently across developed and emerging economies. These findings provide comparative evidence from India and the US with important implications for managers, policymakers, and investors to strengthen financial resilience of the firms under uncertain economic conditions.