Liquidity Management Practices Under Energy Uncertainty: An Empirical Investigation In Pakistan

Abstract

This study examines the impact of energy-related uncertainty on liquidity management practices in Pakistani firms. Utilizing a comprehensive panel dataset of 290 non-financial companies from 2010 to 2022, we employ the energy-related uncertainty (EU) Index developed by Dang et al. (2023) to evaluate the influence of EU on corporate cash holdings. Our panel regression analysis, which includes firm-fixed effects, reveals that a 1% increase in [1]EU leads to a 0.38% increase in cash holdings. These findings underscore the precautionary motive for holding cash, as firms seek to buffer against the risks associated with energy price fluctuations. This research provides valuable insights for policymakers and business leaders to develop more stable energy policies and robust liquidity management strategies in response to energy market volatility.