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The economic policy uncertainty and firm investment in Australia

Author

Listed:
  • Ji Wu
  • Jing Zhang
  • Shiyu Zhang
  • Liping Zou

Abstract

This paper examines the impact of economic policy uncertainty (EPU) on the Australian firm investment activity. We find a significant positive relationship between the EPU and the firm investment over 2002 to 2017 period. Our main results remain unchanged after several endogeneity tests. Further analysis reveals that this relationship becomes pronounced for firms if their headquarters located in small states, firms with more tangible assets, higher operating cash flows and cash holdings, higher profits and leverage, but firms with fewer dividend payouts. Our paper sheds lights on the unique attribute of the impact of the EPU on the Australian firm investment activity and offers important policy and managerial implications.

Suggested Citation

  • Ji Wu & Jing Zhang & Shiyu Zhang & Liping Zou, 2020. "The economic policy uncertainty and firm investment in Australia," Applied Economics, Taylor & Francis Journals, vol. 52(31), pages 3354-3378, June.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:31:p:3354-3378
    DOI: 10.1080/00036846.2019.1710454
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    Cited by:

    1. Claudiu Tiberiu Albulescu, 2020. "Do COVID-19 and crude oil prices drive the US economic policy uncertainty?," Working Papers hal-02509450, HAL.
    2. Yi‐Ting Peng & Tsangyao Chang & Omid Ranjbar, 2022. "Analyzing the degree of persistence of economic policy uncertainty using linear and non‐linear fourier quantile unit root tests," Manchester School, University of Manchester, vol. 90(4), pages 453-471, July.
    3. Ferguson, Andrew & Hu, Wei & Lam, Peter, 2022. "Political uncertainty and deal structure: Evidence from Australian mining project acquisitions," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    4. Yuan, Tiezhen & Wu, Ji (George) & Qin, Ni & Xu, Jian, 2022. "Being nice to stakeholders: The effect of economic policy uncertainty on corporate social responsibility," Economic Modelling, Elsevier, vol. 108(C).
    5. Xu Luo & Mengke Yu & Yongsheng Jin, 2023. "The Impact of Economic Policy Uncertainty on Enterprise Green Innovation: A Study on the Moderating Effect of Carbon Information Disclosure," Sustainability, MDPI, vol. 15(6), pages 1-17, March.
    6. Xuan Yang & Shihao Mao & Luxuan Sun & Chao Feng & Yinshuang Xia, 2022. "The Effect of Economic Policy Uncertainty on Green Technology Innovation: Evidence from China’s Enterprises," Sustainability, MDPI, vol. 14(18), pages 1-17, September.
    7. Yuan, Mingqing, 2023. "Economic Policy Uncertainty and Corporate Investment Dynamics: Evidence from Listed Chinese Firms," MPRA Paper 119992, University Library of Munich, Germany.
    8. Hongmin Chun & Maretno Harjoto & Hakjoon Song, 2023. "Economic policy uncertainty and corporate donation: evidence from private firms in Korea," Review of Managerial Science, Springer, vol. 17(3), pages 909-939, April.
    9. Nartea, Gilbert V. & Bai, Hengyu & Wu, Ji, 2020. "Investor sentiment and the economic policy uncertainty premium," Pacific-Basin Finance Journal, Elsevier, vol. 64(C).
    10. Zetterholm, Jonas & Mossberg, Johanna & Jafri, Yawer & Wetterlund, Elisabeth, 2022. "We need stable, long-term policy support! — Evaluating the economic rationale behind the prevalent investor lament for forest-based biofuel production," Applied Energy, Elsevier, vol. 318(C).
    11. Klayme, Tania & Gokmenoglu, Korhan K. & Rustamov, Bezhan, 2023. "Economic policy uncertainty, COVID-19 and corporate investment: Evidence from the gold mining industry," Resources Policy, Elsevier, vol. 85(PA).
    12. Shen, Huayu & Hou, Fei & Peng, Miaowei & Xiong, Hao & Zuo, Haohao, 2021. "Economic policy uncertainty and corporate tax avoidance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    13. Caroline PERRIN & Laurent WEILL, 2021. "Girls Will Be Girls? The Gendered Effect of Economic Policy Uncertainty on Corporate Investment," Working Papers of LaRGE Research Center 2021-04, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    14. Shams, Syed & Gunaskerage, Abeyratna & Velayutham, Eswaran, 2022. "Economic policy uncertainty and acquisition performance: Australian evidence," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 286-308.
    15. Vo, Hong & Trinh, Quoc-Dat & Le, Minh & Nguyen, Thuy-Ngan, 2021. "Does economic policy uncertainty affect investment sensitivity to peer stock prices?," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 685-699.
    16. Tarkom, Augustine & Ujah, Nacasius U., 2023. "Inflation, interest rate, and firm efficiency: The impact of policy uncertainty," Journal of International Money and Finance, Elsevier, vol. 131(C).
    17. Fedorova, Elena & Ledyaeva, Svetlana & Drogovoz, Pavel & Nevredinov, Alexandr, 2022. "Economic policy uncertainty and bankruptcy filings," International Review of Financial Analysis, Elsevier, vol. 82(C).
    18. Fengxiu Zhou & Chien-Chiang Lee, 2023. "Political uncertainty and innovation of export enterprises: international evidence for developing countries," Economic Change and Restructuring, Springer, vol. 56(6), pages 4371-4400, December.

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