Economic policy uncertainty and firms' investment and financing decisions in China

Guanchun Liu and Chengsi Zhang

China Economic Review, 2020, vol. 63, issue C

Abstract: This paper designs a quasi-natural experiment for the identification of causal relationships between economic policy uncertainty and firms' investment-financing decisions using China's supply-side structural reform in 2015. We construct measures of asset reversibility across industries using China's national input–output flow table and match them with nonfinancial firms listed in China's A-share stock market from 2013 to 2017. We then use the difference-in-difference estimation strategy to investigate two-dimensional variations in periods (i.e., before and after 2015) and asset reversibility (i.e., high- and low-reversibility industries). The empirical results show that economic policy uncertainty significantly impedes real investment and reduces net debt issuance for private firms, whereas no such effects exist in state-owned firms. Interestingly, however, economic policy uncertainty has no significant impact on firms' cash-holding decisions.

Keywords: Economic policy uncertainty; Financial decisions; Asset reversibility (search for similar items in EconPapers)
JEL-codes: E61 G31 G38 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (57)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:63:y:2020:i:c:s1043951x19300240

DOI: 10.1016/j.chieco.2019.02.007

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