Booster or stabilizer? Economic policy uncertainty: New firm-specific measurement and impacts on stock price crash risk

Liang Wang, Qikai Wang and Fan Jiang

Finance Research Letters, 2023, vol. 51, issue C

Abstract: We employ text-based tools to construct a new measurement of firm-specific economic policy uncertainty (FEPU, hereafter): the share of sentences related to EPU in management discussion and analysis (MD&A, hereafter). Our measure enables us to exploit the wide range of variation in actual and perceived EPU across firms and over time. Linking our FEPU to stock price crash risk shows that FEPU negatively affects stock price crash risk, which still holds after addressing endogeneity problem, and varies across firms’ ownership and asset irreversibility. We extend extant research on impacts of EPU by capturing time-varying firms’ exposures to EPU.

Keywords: Firm-specific economic policy uncertainty; Stock price crash risk; Asset irreversibility; Agency cost (search for similar items in EconPapers)
JEL-codes: G12 G18 G34 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006389

DOI: 10.1016/j.frl.2022.103462

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