Economic Policy Uncertainty and the Distribution of Business Operations between Parent Companies and Their Subsidiaries

Qinhe Shi, Wenfeng Qiu and Yuling Fan

Emerging Markets Finance and Trade, 2020, vol. 56, issue 2, 427-456

Abstract: In this paper, we study the influence of uncertainty in economic policy on the business operations distribution using data from China. In doing so, we rely on the China Economic Policy Uncertainty Index and focus on large firms that have subsidiaries to which they can distribute these business operations. Our empirical testing find that companies’ business operations distribution has a negative relationship with uncertainty in economic policies. Further, under the environment of uncertain economic policy, first, the distribution of business operations will converge; second, companies tend to distribute operations to subsidiaries if they have dependence on external financing; third, state-owned companies are more likely to distribute business operations to subsidiaries; finally, companies will distribute business operations within the parent companies in the high degree of financial marketization.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:56:y:2020:i:2:p:427-456

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DOI: 10.1080/1540496X.2019.1700363

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