The relationship of Uncertainty with cash and inventory holdings

Inventory and cash management has always been one of the most complex and challenging decisions at the company level and, consequently, at the macroeconomic level. In recent years, the Iranian economy has faced uncertainty at the macroeconomic level due to various issues such as economic and political sanctions, increasing inflation, military movements in the Middle East region, the emergence of the COVID-19 pandemic, and more. The aim of this research is to investigate the effect of this uncertainty on cash holding and inventory. In this study, conducted from 2011 to 2020, the World Uncertainty Index (WUI) was used to measure uncertainty, which was calculated and presented separately for 143 countries, including Iran. The results indicate a negative relationship between uncertainty and cash holding as well as inventory. Based on the literature, it can be argued that the existence of an inverse relationship between the uncertainty index and cash holding is because managers do not perceive the conditions that create uncertainty as long-term or choose alternative investment paths. The inverse relationship regarding inventory holding can be attributed to the damage caused to financing channels when uncertainty increases.