Does economic and policy uncertainty impact corporate policies? Evidence from India

Vishnu K. Ramesh

Indian Growth and Development Review, 2024, vol. 17, issue 1, 43-62

Abstract: Purpose - This study aims to examine the role of economic political uncertainty (EPU) on various corporate policies, namely, cash reserves, investment, capital structure and operating activities of Indian listed firms. Design/methodology/approach - To assess the influence of policy-related uncertainties, the author uses the India-specific EPU news-based index constructed by Bakeret al.(2016) as a proxy for policy uncertainties. This study uses data from listed Indian firms spanning the period 2003 to 2019. The author uses panel regression models with firm-fixed effects to analyze the impact of EPU on corporate policies, including cash reserves, leverage and CAPEX, while considering key control variables. Findings - In response to heightened EPU, firms tend to increase their cash reserves, curtail their investment activities and favour secured financing options. Notably, this study aligns with the “real options” framework, demonstrating that firms with substantial investment irreversibility significantly reduce their capital expenditures during periods of elevated EPU. Additionally, the results reveal that rising EPU corresponds to heightened borrowing costs and increased operating expenses for firms. Originality/value - In contrast to prior research that predominantly investigated the impact of EPU on the decisions of listed firms in developed markets, this study delves into the role of EPU on corporate policies among listed firms in India. This focus is particularly relevant, given the significant policy changes that have transpired in the Indian business landscape in recent years.

Keywords: EPU; Uncertainty; Emerging markets; Investment decisions; Financial decisions (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:igdrpp:igdr-09-2022-0107

DOI: 10.1108/IGDR-09-2022-0107

Access Statistics for this article

Indian Growth and Development Review is currently edited by Professor Chetan Ghate, Professor Prabal Chowdhury and Professor Prabal Chowdhury

More articles in Indian Growth and Development Review from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().