Firms' uncertainty perceptions and financial misallocation: Evidence from China

Yongqian Tu, Aihua Zhang, Limiao He and Jiangyong Qi

Finance Research Letters, 2024, vol. 59, issue C

Abstract: Recently, the impact of economic policy uncertainty on economic outcomes has received considerable attention. This research examines the link between firms' perceptions of uncertainty and financial misallocation, with a focus on the differential effects across different types of firms. We find that a heightened sense of uncertainty significantly reduces financial misallocation. This relationship remains robust to rigorous validity checks. Interestingly, we find that private firms, those operating in highly competitive arenas and those with minimal financing barriers are more attuned to economic uncertainty. Hence, for these firms, the moderating effect of uncertainty perception on financial misallocation is particularly pronounced.

Keywords: Financial misallocation; Economic uncertainty; Firm decision-making; Financing constraints; Ownership structure; Industry competition (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323011522

DOI: 10.1016/j.frl.2023.104780

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