Monetary policy uncertainty and firm risk-taking

Weijie Luo, Yong Wang and Xiaoge Zhang

Pacific-Basin Finance Journal, 2022, vol. 71, issue C

Abstract: This paper analyzes the impact of monetary policy uncertainty (MPU) on firm risk-taking. We introduce a model to explore the investment behavior of a firm when greater monetary policy uncertainty occurs. The model predicts that, to limit risk exposure, a firm tends to lower its capital stock and thereby reduce its risk-taking. Utilizing the firm-level data from China over the period of 2000–2019, we show that MPU can significantly reduce corporate risk-taking. Moreover, we find that firms with financing constraints become risk averse when faced with MPU shocks. This paper sheds light on both theoretical basis and practical reference for firms to make better decisions on high-risk projects.

Keywords: Monetary policy uncertainty; Firm risk taking (search for similar items in EconPapers)
JEL-codes: E61 G32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X2100202X
Full text for ScienceDirect subscribers only

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:eee:pacfin:v:71:y:2022:i:c:s0927538x2100202x

DOI: 10.1016/j.pacfin.2021.101695

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().