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Macroeconomic Uncertainty, Fund Demand and Corporate Investment

Author

Listed:
  • Yizhong Wang

    (School of Economics, Zhejiang University, Hangzhou 310027, China)

  • Frank M. Song

    (School of Economics, Peking University, Beijing 100871, China)

Abstract

Using a unique set of data on fund use by China's listed companies, this paper examines how macroeconomic uncertainty works on corporate investment. The study shows that macroeconomic uncertainty affects corporate investment behavior through the three channels of external demand, liquidity demand and long-term fund demand. However, the result is influenced by expectations and can differ across firms depending on their economic cycle, shareholder character, industrial character and the financial constraints they are exposed to. Specifically, high macroeconomic uncertainty can weaken the positive roles of these channels, especially those of external demand and liquidity demand, in driving corporate investment. During economic upturns, the effect of these channels is the most evident among state-owned firms, manufacturing firms and low cash dividend firms. The lessons from this study are that macroeconomic policies should be leveraged taking account of the channels through which economic shocks find their way, and monetary policies have to be implemented by targeting microscopic fund demand.

Suggested Citation

  • Yizhong Wang & Frank M. Song, 2015. "Macroeconomic Uncertainty, Fund Demand and Corporate Investment," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 10(2), pages 365-391, June.
    • Handle: RePEc:fec:journl:v:10:y:2015:i:2:p:365-391
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-004-015-0015-6
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    More about this item

    Keywords

    macroeconomic uncertainty; fund demand; corporate investment; monetary policy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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