Business closures in uncertain times: Theory and evidence

Amit Ghosh and Constant L. Yayi

Finance Research Letters, 2025, vol. 81, issue C

Abstract: This letter theoretically and empirically examines the impact of economic policy uncertainty (EPU) on business closures, using panel data from 26 countries over the period 2006–2022. We find that a one-unit increase in the EPU index significantly raises business closures by approximately 0.7 %–0.9 % per 1000 adults. Furthermore, we identify credit supply, household consumption, and stock market capitalization as key channels through which heightened uncertainty leads to firm closures. Our findings highlight the importance of stable credit markets, strong demand, and resilient financial markets in supporting business survival amid rising policy uncertainty.

Keywords: Business closures; Credit supply; Economic policy uncertainty; Tariff overhang; Trade policy uncertainty (search for similar items in EconPapers)
JEL-codes: D80 E32 L20 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325007731

DOI: 10.1016/j.frl.2025.107514

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