Uncertainty, Stock Prices and Debt Structure: Evidence from the U.S.-China Trade War

Ali Ozdagli and Jianlin Wang

No 2212, Working Papers from Federal Reserve Bank of Dallas

Abstract: Using the recent U.S.-China trade war as a laboratory, we show that policy uncertainty shocks have a significant impact on stock prices. This impact is less negative for firms that heavily rely on bank debt whereas non-bank debt does not have a mitigating effect. Moreover, the mitigating effect of bank debt is concentrated among zombie firms. A zombie firm that derives half of its capital from bank debt has no negative stock price reaction to increased uncertainty. These results are consistent with bank debt providing insurance for zombie firms in bad economic times.

Keywords: Policy uncertainty; asset prices; debt structure; zombie firms; trade war (search for similar items in EconPapers)
JEL-codes: E44 F13 G12 G20 G30 (search for similar items in EconPapers)
Pages: 47
Date: 2022-08-19
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-cna, nep-fdg and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:94665

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DOI: 10.24149/wp2212

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