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Economic policy uncertainty and corporate investment: evidence from China

Author

Listed:
  • Xiangyuan Meng

    (Shandong University of Finance and Economics)

  • Haoge Guo

    (Central University of Finance and Economics)

  • Jie Li

    (Central University of Finance and Economics)

Abstract

We investigate the impact of economic policy uncertainty (EPU) on corporate investment. Employing the EPU index at the province level in China and firm level data from the Annual Census of Industrial Enterprises, our analysis reveals that the heightened EPU significantly reduces corporate investment. Specifically, empirical estimates show that 1% increase in the EPU index is associated with 0.051% decrease in corporate investment. Furthermore, the adverse repercussions of EPU on corporate investment are significantly more pronounced for the smaller, younger and less efficient firms as well as those with higher financial vulnerability and less credit loans.

Suggested Citation

  • Xiangyuan Meng & Haoge Guo & Jie Li, 2023. "Economic policy uncertainty and corporate investment: evidence from China," Economic Change and Restructuring, Springer, vol. 56(6), pages 4491-4529, December.
    • Handle: RePEc:kap:ecopln:v:56:y:2023:i:6:d:10.1007_s10644-023-09564-y
    DOI: 10.1007/s10644-023-09564-y
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    More about this item

    Keywords

    Economic policy uncertainty; Corporate investment; Financing capability;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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