How does economic policy uncertainty affect corporate diversification?

Khanh Hoang, Cuong Nguyen and Hailiang Zhang

International Review of Economics & Finance, 2021, vol. 72, issue C, 254-269

Abstract: Economic policy uncertainty (EPU) is positively associated with corporate diversification in China between 2001 and 2007. EPU’s positive impact on diversification is significant only for large and medium cap firms. High EPU is associated with higher diversification; the effect of EPU on diversification by state-owned enterprises (SOEs) is greater than for non-SOEs. Diversification of firms with a high number of equity analysts and equity reports increases during high EPU. Diversification actively mitigates economic policy-related risks, enhancing firm performance. Our results are robust to different measures of EPU and corporate diversification and remain significantly unchanged when dealing with endogeneity.

Keywords: Economic policy uncertainty; Diversification; Information asymmetry; Agency problem; Risk; China (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:72:y:2021:i:c:p:254-269

DOI: 10.1016/j.iref.2020.11.008

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