Effects of Policy Uncertainty on Firm-Level Productivity

Melanie Cao () and Daniel Tut
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Melanie Cao: Schulich School of Business, York University, Toronto, ON M3J 1P3, Canada

Quarterly Journal of Finance (QJF), 2024, vol. 14, issue 03, 1-34

Abstract: Does policy uncertainty affect productivity? Policy uncertainty creates delays on decision-making as firms await new information about prices, costs, and other market conditions before committing resources. Such delays can have real consequences on firms’ productivity and corporate decisions. We find that economic policy uncertainty has a negative impact on firm-level productivity. We further show that the negative impact is alleviated by firms’ high cash holdings or prior committed irreversible investments. These findings are robust to various specifications.

Keywords: Policy uncertainty; total factor productivity; leverage; cash; business cycles (search for similar items in EconPapers)
JEL-codes: E22 E32 G18 G31 G32 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S2010139224500101

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