Australian policy uncertainty and corporate investment

Xikai Chen, Cao Hoang Anh Le, Yaowen Shan and Stephen Taylor

Pacific-Basin Finance Journal, 2020, vol. 61, issue C

Abstract: This study examines the impact of economic policy uncertainty (EPU) on capital investment by Australian firms. Following a replication of prior US evidence (Gulen and Ion 2016), we show that EPU has a persistent and negative effect (up to four years) on capital investment by Australian Stock Exchange (ASX) listed firms, in contrast to the more short-lived effect of EPU in the US. The different results are consistent with the high proportion of ASX-listed firms in the resources and mining industries, where investment projects frequently proceed in stages and have time-to-build considerations. In accordance with real option theory, the findings reinforce the notion that EPU can dampen investment opportunities due to investment irreversibility.

Keywords: Capital investment; Policy uncertainty; Australian firms (search for similar items in EconPapers)
JEL-codes: E22 G31 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:61:y:2020:i:c:s0927538x20301256

DOI: 10.1016/j.pacfin.2020.101341

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