The relevance of national culture to policy uncertainty and firm performance: European evidence

Tanveer Ahsan, Muhammad Azeem Qureshi, Ammar Gull () and Fazal Muhammad
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Tanveer Ahsan: ESC Rennes School of Business - ESC [Rennes] - ESC Rennes School of Business
Fazal Muhammad: UR - Université de Rennes, CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: Purpose The purpose of this study is to investigate the impact of policy uncertainty on firm performance and to examine how the different cultural societies deal with the policy-induced uncertainty. Design/methodology/approach The authors use data of European non-financial firms to extend the growing literature on policy uncertainty, firm performance and national culture. The authors consider financial as well as market proxies to measure firm performance and use Hofstede's cultural dimensions as a proxy for national culture. The authors apply the generalized method of moments (GMM-system) regression technique on a dataset of 702 non-financial European firms, listed during the period 2002-2018. Findings The authors find overwhelming evidence that policy uncertainty reduces the performance of the European firms; however, cultural differences among different European countries moderate the impact of policy uncertainty on the financial as well as the market performance of the firms. The results of this study show that European cultures with high power distance, individualism, masculinity and indulgence efficiently deal with the economic policy uncertainty. While the European societies with high uncertainty avoidance fail to cope with policy-induced uncertainty. The results are robust to different regression models, alternate proxies of firm performance and endogeneity issues. Practical implications The authors argue that policy uncertainty increases information asymmetry and decreases firm performance, therefore, the policymakers shall be considerate of the consequences of the policy-induced uncertainty in the society and business arena that would not only adversely affect the firms but also the economy. Originality/value To the best of the authors' knowledge, this is the first study that investigates the role of national culture on the relationship between policy uncertainty and firm performance in the European context.

Keywords: Policy uncertainty; Firm performance; National culture; Hofstede; Europe; Panel data (search for similar items in EconPapers)
Date: 2022
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Published in Journal of Economic Studies, 2022, ⟨10.1108/JES-01-2022-0012⟩

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Journal Article: The relevance of national culture to policy uncertainty and firm performance: European evidence (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03780799

DOI: 10.1108/JES-01-2022-0012

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