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Business closures in uncertain times: Theory and evidence

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  • Ghosh, Amit
  • Yayi, Constant L.

Abstract

This letter theoretically and empirically examines the impact of economic policy uncertainty (EPU) on business closures, using panel data from 26 countries over the period 2006–2022. We find that a one-unit increase in the EPU index significantly raises business closures by approximately 0.7 %–0.9 % per 1000 adults. Furthermore, we identify credit supply, household consumption, and stock market capitalization as key channels through which heightened uncertainty leads to firm closures. Our findings highlight the importance of stable credit markets, strong demand, and resilient financial markets in supporting business survival amid rising policy uncertainty.

Suggested Citation

  • Ghosh, Amit & Yayi, Constant L., 2025. "Business closures in uncertain times: Theory and evidence," Finance Research Letters, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007731
    DOI: 10.1016/j.frl.2025.107514
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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