Capital Reallocation and Firm-Level Productivity Under Political Uncertainty
Daniel Tut and
Melanie Cao
MPRA Paper from University Library of Munich, Germany
Abstract:
Does policy uncertainty affect productivity? Policy uncertainty creates delays as firms await new information about prices, costs and other market conditions before committing resources. Such delays can have real consequences on firms’ productivity and corporate decisions. First, we find that economic policy uncertainty has a negative impact on firm-level productivity. Second, debt magnifies the adverse effects of policy uncertainty on productivity, but access to external financing during periods of significant policy uncertainty shocks has a positive impact on firm� level productivity. Third, Policy uncertainty is positively related to cash holdings but this effect is mostly driven by highly productive firms and by firms with higher levels of irreversible investments since these firms face higher opportunity costs in future states. The three findings are robust to various specifications and provide an affirmative answer to the opening question.
Keywords: Policy Uncertainty; Capital Reallocation; TFP; Leverage; Cash; Business Cycles (search for similar items in EconPapers)
JEL-codes: G0 G2 G28 G3 G31 G32 G38 (search for similar items in EconPapers)
Date: 2021-06-28
New Economics Papers: this item is included in nep-cfn, nep-eff, nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:108528
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