Economic Policy Uncertainty and Access to Finance: An International Evidence

Mohammed Benlemlih, Ç. Vural Yavaş and C. Assaf
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Mohammed Benlemlih: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School
C. Assaf: 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: In this study, we provide the first attempt to relate economic policy uncertainty (EPU) to firms' access to finance. Using data from 26 countries and the news-based index from Baker et al. (2016), we provide evidence that EPU significantly increases financial constraints and decreases firms' access to finance. Our main inference is robust to alternative measures of financial constraints, alternative samples, alternative model specifications, and several approaches that control for potential endogeneity. We further show that the EPU-financial constraint relationship is driven by both the demand and supply sides of financing. Additional analyses suggest that the impact of EPU on firms' financial constraints is moderated by board characteristics (i.e., gender diversity, independence, and duality). They also highlight the moderating roles of government effectiveness, the rule of law and control of corruption. Collectively, our findings provide novel theoretical and practical contributions in relation to EPU and the firms' setting. \textcopyright 2023 John Wiley & Sons, Ltd.

Keywords: access to finance; board characteristics; capital structure; economic policy uncertainty; financial constraints; macro-economics (search for similar items in EconPapers)
Date: 2023
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Published in International Journal of Finance and Economics, 2023, ⟨10.1002/ijfe.2898⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04433051

DOI: 10.1002/ijfe.2898

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