I am having some trouble understanding the regression output. The author used an underlying statement to interpret his results. The baseline regression model is Cash holding = alpha + Beta1(Economic Policy Instability = PU) + CV + error term. The main hypothesis expects a positive relationship between cash holding and economic policies. The coefficient value of PU = 0.016***. I am having trouble understanding the way he justified his statistics.
The economic effect of policy uncertainty on corporate cash holdings is also important. Our calculation indicates that holding other variables fixed at their sample means, a one standard deviation increase in policy uncertainty above its sample mean is associated with a 0.39 to 0.64 percentage-point increase in corporate cash holdings, which is equivalent to 2.7% to 4.6% of the sample mean.
Kindly assist me to understand these tricky econometrics.
I am not an econometrician, but I had to analyse some results from my own work similar to yours. A clear and more precise desciption is, for me, needed.to answer your question.
For exemple, how many observation do you have ?
For me the result is not so surprising. The basic asumption of the model could be flawed. In presence of political instability, It seems to me that detaining cash could be a risk-adverse strategy. Even if the "value" of the currency is subject to uncertainty. The other ways to save wealth could be very risky : governement bonds (fixed rate or not) private firms shares. Moreover, detaining cash could make easier avoid taxation, if the source of income allow this. Maybe the authors can test various hypothese by introducing ommited variables. This could lead to a new specitication to avoid multicolinearity. For exemple one variable for the total amount of assets and a variable for the share of cash.
First we should know that how PU variable is measured, either it is discrete or continuous. And what is the transformation of variables of the model.
As per given info in the Question, the result 0.016 indicates that if policy uncertainty is increased by one unit, corporate cash holding will be increased by the coeff magnitude. I think, it makes economic sense as well.
To understand such forms, it is necessary to return to the stage of describing the model and the relationship that the theory decides between the variables in addition to the previous studies.
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