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Economic policy uncertainty and enterprise investment decision: Evidence from China

Tingli Liu, Xiao Chen and Songling Yang

Pacific-Basin Finance Journal, 2022, vol. 75, issue C

Abstract: We empirically examine the impact of economic policy uncertainty (EPU) on the investment decision of China's high-tech manufacturing industry based on the company's investment structure. There are several findings. First, innovation investment and maintenance investment are mutually exclusive. However, enterprise prefers innovation investment when facing higher EPU. Second, excess return, asset irreversibility and external market demand are three important mechanisms of the impact of EPU on the corporate investment decision. Finally, higher financing constraints weaken the impact of EPU on investment decision. Firms with higher capital intensity tend to reduce both innovation investment and maintenance investment when EPU rises. The research shows that when the EPU increases, enterprises in China's high-tech manufacturing industry are more inclined to choose innovation investment.

Keywords: High-tech manufacturing industry; Economic policy uncertainty; Investment decision; Innovation investment; Maintenance investment (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.pacfin.2022.101859

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

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