IDEAS home Printed from https://ideas.repec.org/a/wly/ijfiec/v30y2025i3p2427-2449.html
   My bibliography  Save this article

The impact of economic policy uncertainty on earnings value relevance

Author

Listed:
  • Huanyu Ma
  • Xuegang Sun

Abstract

Earnings value relevance, defined by the predictive and explanatory power of corporate earnings information for market value, reflects accounting earnings decision utility and the capital market's information efficiency. Economic policy uncertainty (EPU) reduces information quality, impairs the information environment, and disrupts interpretation of information, diminishing earnings value relevance. Using a dataset comprising Chinese A‐share listed companies from 2006 to 2019, we empirically examine the impact of EPU on earnings value relevance. Our finding indicates that EPU reduces earnings value relevance, and the effect is more pronounced in firms with lower governance effectiveness and higher firm complexity. Channel analysis demonstrates that decreasing information quality, undermining the information environment, and impeding investor decision‐making are the main three mechanisms. In light of these findings, the government should strive to enhance stability in economic policies and improve information efficiency, fostering a positive interaction between firms and the capital market.

Suggested Citation

  • Huanyu Ma & Xuegang Sun, 2025. "The impact of economic policy uncertainty on earnings value relevance," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 2427-2449, July.
    • Handle: RePEc:wly:ijfiec:v:30:y:2025:i:3:p:2427-2449
    DOI: 10.1002/ijfe.3023
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/ijfe.3023
    Download Restriction: no
    File URL: https://libkey.io/10.1002/ijfe.3023?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Huang, Yun & Luk, Paul, 2020. "Measuring economic policy uncertainty in China," China Economic Review, Elsevier, vol. 59(C).
    2. Gus De Franco & S.P. Kothari & Rodrigo S. Verdi, 2011. "The Benefits of Financial Statement Comparability," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 49(4), pages 895-931, September.
    3. Chen, Min & Zhu, Zhaobo & Han, Peiwen & Chen, Bo & Liu, Jia, 2022. "Economic policy uncertainty and analyst behaviours: Evidence from the United Kingdom," International Review of Financial Analysis, Elsevier, vol. 79(C).
    4. John Y. Campbell & Martin Lettau & Burton G. Malkiel & Yexiao Xu, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, vol. 56(1), pages 1-43, February.
    5. Easton, Pd & Harris, Ts, 1991. "Earnings As An Explanatory Variable For Returns," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 29(1), pages 19-36.
    6. Aviral Kumar Tiwari & Muhammad Ali Nasir & Muhammad Shahbaz, 2021. "Synchronisation of policy related uncertainty, financial stress and economic activity in the United States," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6406-6415, October.
    7. Tang, Liang & Wan, Xiangyu, 2022. "Economic policy uncertainty and stock price informativeness," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    8. Vicentiu Covrig & Buen Sin Low, 2005. "The Relevance of Analysts’ Earnings Forecasts in Japan," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7‐8), pages 1437-1463, September.
    9. Liguang Zhang & Wanyi Chen & Ning Hu, 2021. "Economic policy uncertainty and stock liquidity: evidence from China," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 18(1), pages 22-44, March.
    10. Guan, Jialin & Xu, Huijuan & Huo, Da & Hua, Yechun & Wang, Yunfeng, 2021. "Economic policy uncertainty and corporate innovation: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    11. James A. Ohlson & Beate E. Juettner-Nauroth, 2005. "Expected EPS and EPS Growth as Determinantsof Value," Review of Accounting Studies, Springer, vol. 10(2), pages 349-365, September.
    12. Ma, Huanyu & Hao, Dapeng, 2022. "Economic policy uncertainty, financial development, and financial constraints: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 368-386.
    13. Robert Krol, 2014. "Economic Policy Uncertainty and Exchange Rate Volatility," International Finance, Wiley Blackwell, vol. 17(2), pages 241-256, June.
    14. Tran, Quoc Trung, 2019. "Economic policy uncertainty and corporate risk-taking: International evidence," Journal of Multinational Financial Management, Elsevier, vol. 52.
    15. Nguyen, Nam H. & Phan, Hieu V., 2017. "Policy Uncertainty and Mergers and Acquisitions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(2), pages 613-644, April.
    16. Si, Deng-Kui & Wan, Shen & Li, Xiao-Lin & Kong, Dongmin, 2022. "Economic policy uncertainty and shadow banking: Firm-level evidence from China," Research in International Business and Finance, Elsevier, vol. 63(C).
    17. David S. Jenkins & Gregory D. Kane & Uma Velury, 2009. "Earnings Conservatism and Value Relevance Across the Business Cycle," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9-10), pages 1041-1058.
    18. Shyu, Hawfeng & Gao, Feng & Wu, Peng & Zhu, Song, 2020. "Earnings dispersion in the spotlight: The effects of media coverage on stock liquidity," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    19. Dichev, Ilia D. & Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2013. "Earnings quality: Evidence from the field," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 1-33.
    20. Wang, Yizhong & Chen, Carl R. & Huang, Ying Sophie, 2014. "Economic policy uncertainty and corporate investment: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 26(C), pages 227-243.
    21. Blankespoor, Elizabeth & deHaan, Ed & Marinovic, Iván, 2020. "Disclosure processing costs, investors’ information choice, and equity market outcomes: A review," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    22. Pástor, Ľuboš & Veronesi, Pietro, 2013. "Political uncertainty and risk premia," Journal of Financial Economics, Elsevier, vol. 110(3), pages 520-545.
    23. Cui, Xin & Wang, Chunfeng & Liao, Jing & Fang, Zhenming & Cheng, Feiyang, 2021. "Economic policy uncertainty exposure and corporate innovation investment: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    24. Wen He & Hwee Cheng Tan & Leon Wong, 2020. "Return windows and the value relevance of earnings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2549-2583, September.
    25. Drobetz, Wolfgang & El Ghoul, Sadok & Guedhami, Omrane & Janzen, Malte, 2018. "Policy uncertainty, investment, and the cost of capital," Journal of Financial Stability, Elsevier, vol. 39(C), pages 28-45.
    26. Berger, Allen N. & Guedhami, Omrane & Kim, Hugh H. & Li, Xinming, 2022. "Economic policy uncertainty and bank liquidity hoarding," Journal of Financial Intermediation, Elsevier, vol. 49(C).
    27. Yung, Kenneth & Root, Andrew, 2019. "Policy uncertainty and earnings management: International evidence," Journal of Business Research, Elsevier, vol. 100(C), pages 255-267.
    28. Barth, Mary E. & Beaver, William H. & Landsman, Wayne R., 2001. "The relevance of the value relevance literature for financial accounting standard setting: another view," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 77-104, September.
    29. Vicentiu Covrig & Buen Sin Low, 2005. "The Relevance of Analysts' Earnings Forecasts in Japan," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1437-1463.
    30. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    31. Brian J. Bushee & Ian D. Gow & Daniel J. Taylor, 2018. "Linguistic Complexity in Firm Disclosures: Obfuscation or Information?," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 56(1), pages 85-121, March.
    32. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 18(1), pages 109-131.
    33. Demir, Ender & Ersan, Oguz, 2017. "Economic policy uncertainty and cash holdings: Evidence from BRIC countries," Emerging Markets Review, Elsevier, vol. 33(C), pages 189-200.
    34. Tran, Quoc Trung, 2021. "Economic policy uncertainty and cost of debt financing: International evidence," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    35. Waqas Bin Khidmat & Man Wang & Sadia Awan, 2018. "Corporate governance, earnings management and the value-relevance of accounting information: Evidence from Pakistan," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 1-31, September.
    36. Zhuo Cheng & Tajul Ariffin Masron, 2023. "Economic policy uncertainty and corporate digital transformation: evidence from China," Applied Economics, Taylor & Francis Journals, vol. 55(40), pages 4625-4641, August.
    37. Lili Dai & Phong Ngo, 2021. "Political Uncertainty and Accounting Conservatism," European Accounting Review, Taylor & Francis Journals, vol. 30(2), pages 277-307, March.
    38. Jianyun Tang & Mary Crossan & W. Glenn Rowe, 2011. "Dominant CEO, Deviant Strategy, and Extreme Performance: The Moderating Role of a Powerful Board," Journal of Management Studies, Wiley Blackwell, vol. 48(7), pages 1479-1503, November.
    39. Nagar, Venky & Schoenfeld, Jordan & Wellman, Laura, 2019. "The effect of economic policy uncertainty on investor information asymmetry and management disclosures," Journal of Accounting and Economics, Elsevier, vol. 67(1), pages 36-57.
    40. Michael Firth & Kailong (Philip) Wang & Sonia ML Wong, 2015. "Corporate Transparency and the Impact of Investor Sentiment on Stock Prices," Management Science, INFORMS, vol. 61(7), pages 1630-1647, July.
    41. Zhu, Siyuan & Lu, Rong & Xu, Tianli & Wu, Wenbin & Chen, Yang, 2024. "Can common institutional owners inhibit bad mergers and acquisitions? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 246-266.
    42. Cheng, Feiyang & Wang, Chunfeng & Cui, Xin & Wu, Ji & He, Feng, 2021. "Economic policy uncertainty exposure and stock price bubbles: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 78(C).
    43. He, Feng & Ma, Yaming & Zhang, Xiaojie, 2020. "How does economic policy uncertainty affect corporate Innovation?–Evidence from China listed companies," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 225-239.
    44. Tian, Jing & Li, Haiwei & You, Pin, 2022. "Economic policy uncertainty, bank loan, and corporate innovation," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).
    45. Beisland, Leif Atle & Hamberg, Mattias, 2013. "Earnings sustainability, economic conditions and the value relevance of accounting information," Scandinavian Journal of Management, Elsevier, vol. 29(3), pages 314-324.
    46. Baolei Qi & Liuchuang Li & Qing Zhou & Jinghui Sun, 2017. "Does internal control over financial reporting really alleviate agency conflicts?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(4), pages 1101-1125, December.
    47. Phan, Dinh Hoang Bach & Iyke, Bernard Njindan & Sharma, Susan Sunila & Affandi, Yoga, 2021. "Economic policy uncertainty and financial stability–Is there a relation?," Economic Modelling, Elsevier, vol. 94(C), pages 1018-1029.
    48. Du, Xiuli & Ao, Zhu & Chai, Yiwei & Ge, Shilong, 2023. "Economic policy uncertainty, investor attention and post-earnings announcement drift," International Review of Financial Analysis, Elsevier, vol. 87(C).
    49. Krokida, Styliani-Iris & Makrychoriti, Panagiota & Spyrou, Spyros, 2020. "Monetary policy and herd behavior: International evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 386-417.
    50. Lang, Mark & Stice-Lawrence, Lorien, 2015. "Textual analysis and international financial reporting: Large sample evidence," Journal of Accounting and Economics, Elsevier, vol. 60(2), pages 110-135.
    51. David S. Jenkins & Gregory D. Kane & Uma Velury, 2009. "Earnings Conservatism and Value Relevance Across the Business Cycle," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9‐10), pages 1041-1058, November.
    52. Liu, Beibei & Tan, Keqi & Wong, Sonia M.L. & Yip, Rita W.Y., 2022. "Intra-industry information transfer in emerging markets: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 140(C).
    53. Xin Cui & Shouyu Yao & Zhenming Fang & Hua Wang, 2021. "Economic policy uncertainty exposure and earnings management: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(3), pages 3937-3976, September.
    54. David Hirshleifer & Sonya Seongyeon Lim & Siew Hong Teoh, 2009. "Driven to Distraction: Extraneous Events and Underreaction to Earnings News," Journal of Finance, American Finance Association, vol. 64(5), pages 2289-2325, October.
    55. Marilyn F. Johnson, 1999. "Business Cycles and the Relation between Security Returns and Earnings," Review of Accounting Studies, Springer, vol. 4(2), pages 93-117, June.
    56. Huseyin Gulen & Mihai Ion, 2016. "Editor's Choice Policy Uncertainty and Corporate Investment," The Review of Financial Studies, Society for Financial Studies, vol. 29(3), pages 523-564.
    57. Kaviani, Mahsa S. & Kryzanowski, Lawrence & Maleki, Hosein & Savor, Pavel, 2020. "Policy uncertainty and corporate credit spreads," Journal of Financial Economics, Elsevier, vol. 138(3), pages 838-865.
    58. Xu, Zhaoxia, 2020. "Economic policy uncertainty, cost of capital, and corporate innovation," Journal of Banking & Finance, Elsevier, vol. 111(C).
    59. Min Chen & Zhaobo Zhu & Peiwen Han & Bo Chen & Jia Liu, 2022. "Economic policy uncertainty and analyst behaviours: Evidence from the United Kingdom," Post-Print hal-03628930, HAL.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Qian, Binsheng & Tan, Yusen & Power, Gabriel & Mandal, Anandadeep, 2025. "Economic policy uncertainty, information production, and transparency," International Review of Financial Analysis, Elsevier, vol. 103(C).
    2. Deng, Wei & Gao, Lei & Xing, Fei & Yang, Ming, 2023. "Economic policy uncertainty, bank deposits, and liability structure," Emerging Markets Review, Elsevier, vol. 55(C).
    3. Shabir, Mohsin & Jiang, Ping & Bakhsh, Satar & Zhao, Zhongxiu, 2021. "Economic policy uncertainty and bank stability: Threshold effect of institutional quality and competition," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    4. Shen, Xieyang & Yang, Sijie & Chen, Yulin & Zeng, Jianyu, 2022. "How does economic policy uncertainty influence managers' learning from peers' stock prices? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    5. Chada, Swechha, 2023. "Economic policy uncertainties and institutional ownership in India," The Journal of Economic Asymmetries, Elsevier, vol. 27(C).
    6. Peterson Kitakogelu Ozili, 2020. "Financial reporting under economic policy uncertainty," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 19(2), pages 325-338, December.
    7. Lou, Zhukun & Chen, Siyu & Yin, Wenwei & Zhang, Chuan & Yu, Xiaoyu, 2022. "Economic policy uncertainty and firm innovation: Evidence from a risk-taking perspective," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 78-96.
    8. El Ghoul, Sadok & Guedhami, Omrane & Mansi, Sattar & Wang, He (Helen), 2023. "Economic policy uncertainty, institutional environments, and corporate cash holdings," Research in International Business and Finance, Elsevier, vol. 65(C).
    9. Sadok El Ghoul & Omrane Guedhami & Robert Nash & He (Helen) Wang, 2022. "Economic policy uncertainty and insider trading," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(4), pages 817-854, December.
    10. Liu, Jinjing & Wang, Hong, 2022. "Economic policy uncertainty and the cost of capital," International Review of Financial Analysis, Elsevier, vol. 81(C).
    11. Nguyen, Duc Nguyen & Nguyen, Canh Phuc & Dang, Le Phuong Xuan, 2022. "Uncertainty and corporate default risk: Novel evidence from emerging markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    12. Mo Chen & Xuhua Hu & Jijian Zhang & Zhe Xu & Guang Yang & Zenan Sun, 2023. "Are Firms More Willing to Seek Green Technology Innovation in the Context of Economic Policy Uncertainty? —Evidence from China," Sustainability, MDPI, vol. 15(19), pages 1-24, September.
    13. Zhang, Weike & Zhang, Xueyuan & Tian, Xiaoli & Sun, Fengwei, 2021. "Economic policy uncertainty nexus with corporate risk-taking: The role of state ownership and corruption expenditure," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    14. Chuanzhen Li & Liang Zhao & Yiwen Zhang, 2024. "Economic policy uncertainty and cash dividend policy: evidence from China," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 11(1), pages 1-17, December.
    15. Li, Mingyan & Tang, Xuepeng & Yu, Linhui, 2024. "Economic policy uncertainty and the demand for labor: Evidence from the online job postings of Chinese firms," International Review of Economics & Finance, Elsevier, vol. 96(PA).
    16. Jia, Qiaoyu & Zhou, Jia'nan, 2024. "Does economic policy uncertainty influence executive compensation stickiness? Firm-level evidence from China," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 562-582.
    17. Cui, Xin & Wang, Chunfeng & Sensoy, Ahmet & Liao, Jing & Xie, Xiaochen, 2023. "Economic policy uncertainty and green innovation: Evidence from China," Economic Modelling, Elsevier, vol. 118(C).
    18. Theodora Bermpei & Antonios Nikolaos Kalyvas & Lorenzo Neri & Antonella Russo, 2022. "Does economic policy uncertainty matter for financial reporting quality? Evidence from the United States," Review of Quantitative Finance and Accounting, Springer, vol. 58(2), pages 795-845, February.
    19. 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.
    20. Wang, Yonglian & Wang, Lijun & Pan, Changchun & Hong, Songzhi, 2022. "Economic policy uncertainty and price pass-through effect of exchange rate in China," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ijfiec:v:30:y:2025:i:3:p:2427-2449. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/1076-9307/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.