The Impact of Economic Policy Uncertainty on Corporate Investment Decisions

Öz

The purpose of this research work is to explore the impact of economic policy uncertainty on corporate investment across developed and developing economies. The study also investigates the impact on investment of firms having different ownership arrangements, financial system development, leadership status and capital intensity. The study employs Generalised Method of Moments technique to analyse a comprehensive dataset of 25 countries for the period from 2008 to 2021, comprising 11,718 firm-level observations. The results show that EPU has a significant negative effect on corporate investment, particularly in developed countries, developed financial systems, nonstate-owned enterprises, capital-intensive entities, and firms with CEO duality and dispersed ownership structures. On the other hand, EPU has an insignificant impact on investment made by firms in developing economies, underdeveloped financial markets, firms with state and concentrated ownership, and non-CEO duality. The results accentuate the complex interaction between EPU and firms’ investment, indicating the need for customised policy approaches to mitigate the negative effects across diverse economies, markets, ownership, and leadership structure. JEL Classification : E22 , G18 , G30

Anahtar Kelimeler

• Economic policy uncertainty
• corporate investments
• developed and developing economies
• ownership structure
• capital intensity

Kaynakça

1. Abel, A. B. (1983). Optimal investment under uncertaintY. American Economic Review, 73(i), 228-233. https://repositorY.upenn.edu/fnce_ papers/220 google scholar
2. Aivazian, V. A., Ge, Y., & Qiu, J. (2005). The impact of leverage on firm investment: Canadian evidence. Journal of Corporate Finance, 11(1-2), 277-291. https://doi.org/10.1016/S0929-1199(03)00062-2 google scholar
3. Akron, S., Demir, E., Dîez-Esteban, J. M., & Garcîa-Gomez, C. D. (2020). Economic poliCY uncertaintY and corporate investment: Evidence from the U.S. hospitalitY industrY. Tourism Management, 77, 104019. https://doi.org/10.1016/j.tourman.2019.104019 google scholar
4. Aldata, M. M. U., & WijaYa, C. (2020). The influence of uncertainties on leverage and investment decisions of non-financial firms in Indonesia. International Journal of Management, 11(5), 702-717. https://doi.org/10.34218/IJM.11.5.2020.063 google scholar
5. Alexander, J. A., Fennell, M. L., & Halpern, M. T. (1993). Leadership instabilitY in hospitals: The influence of board-CEO relations and organizational growth and decline. Administrative Science Quarterly, 38(1), 74-99. https://doi.org/10.2307/2393255 google scholar
6. Alimehmeti, G., & Paletta, A. (2009). Ownership concentration and effects over firm performance : Evidences from ItalY. European Scientific Journal, 8(22), 39-49. google scholar
7. Almeida, H., Campello, M., & Weisbach, M. S. (2003). The cash flow sensitivitY of cash. SSRN Electronic Journal. https://doi.org/10.2139/ ssrn.345840 google scholar
8. Arouri, M., & Roubaud, D. (2016). On the determinants of stock market dYnamics in emerging countries: The role of economic policY uncertaintY in China and India. Economics Bulletin, 36(2), 760-770. https://ideas.repec.org/a/ebl/ecbull/eb-14-00543.html google scholar

9. Arouri, M., EstaY, C., Rault, C., & Roubaud, D. (2016). Economic policY uncertaintY and stock markets: Long-run evidence from the US. Finance Research Letters, 18, 136-141. https://doi.org/10.1016/j.frl.2016.04.011 google scholar
10. Bakke, I., Fleten, S. E., Hagfors, L. I., Hagspiel, V., & Norheim, B. (2016). Investment in mutuallY exclusive transmission projects under policY uncertaintY. Journal of Commodity Markets, 3(1), 54-69. https://doi.org/10.1016/j.jcomm.2016.08.002 google scholar
11. Balcilar, M., Gupta, R., & Segnon, M. (2016). The role of economic policY uncertaintY in predicting U.S. recessions: A mixed-frequencY markov-switching vector autoregressive approach. Economics, 10(1). https://doi.org/10.5018/economics-ejournal.ja.2016-27 google scholar
12. Becker, T., & Mauro, P. (2021). Output drops and the shocks that matter. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.926227 google scholar
13. Bernanke, B. S. (1983). IrreversibiLitY, uncertaintY, and CYcLicaL investment. The QuarterlyJournal of Economics, 98(i), 85-106. https:// doi.org/10.2307/1885568 google scholar
14. Bond, S., & Cummins, J. G. (2011). UncertaintY and investment: An empiricaL investigation using data on anaLYsts’ profits forecasts. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.559528 google scholar
15. Brennan, M. J., & Schwartz, E. S. (1985). EvaLuating naturaL resource investments. The Journal of Business, 58(2), 135-157. https://doi.org/ 10.1086/296288 google scholar
16. Brunnermeier, M. K. (2009). Deciphering the LiquiditY and credit crunch 2007-2008. Journal of Economic Perspectives, 23(1), 77-100. https://doi.org/10.1257/jep.23.1.77 google scholar
17. Bukvic, V., & Tekavcic, M. (2024). Impact of corporate investment on Business performance: The case of sLovenian firms for the period 2000-2017. In Six Sigma and Quality Management. IntechOpen. https://doi.org/10.5772/intechopen.104994 google scholar
18. CabaLLero, R. J. (1991). On the sign of the investment-uncertaintY reLationship. Review of Economic Studies, 81(1), 278-288. http://www. jstor.org/stabLe/10.2307/2006800 google scholar
19. CabaLLero, R. J., & PindYck, R. S. (1996). UncertaintY, investment, and industrY evoLution. International Economic Review, 37(3), 641-642. https://doi.org/10.2307/2527445 google scholar
20. CaLomiris, C. W., Love, I., & Martînez Perîa, M. S. (2012). Stock returns’ sensitivities to crisis shocks: Evidence from deveLoped and emerging markets. Journal of International Money and Finance, 31(4), 743-765. https://doi.org/10.1016/j.jimonfin.2012.01.002 google scholar
21. CCAF, WorLd Bank, & Economic, W. (2020). COVID-19 to plunge global economy into worst recession since World War II. WorLd Eco-nomic Forum. https://www.worLdbank.org/en/news/press-reLease/2020/06/08/covid-19-to-pLunge-gLobaL-economY-into-worst-recession-since-worLd-war-ii google scholar
22. Chang, T., Chen, W. Y., Gupta, R., & NguYen, D. K. (2015). Are stock prices reLated to the poLiticaL uncertaintY index in OECD countries? Evidence from the bootstrap paneL causaLitY test. Economic Systems, 39(2), 288-300. https://doi.org/10.1016/j.ecosYs.2014.10.005 google scholar
23. Chava, S., & Robert, Mi. R. (2008). How does financing impact investment? The roLe of debt covenants. The Journal of Finance, 63(5), 2085-2121. https://doi.org/10.1111/j.1540-6261.2008.01391.x google scholar
24. Chen, S., Sun, Z., Tang, S., & Wu, D. (2011). Government intervention and investment efficiencY: Evidence from China. Journal of Corporate Finance, 17(2), 259-271. https://doi.org/10.1016/j.jcorpfin.2010.08.004 google scholar
25. Chen, X., Le, C. H. A., Shan, Y., & TaYLor, S. (2020). AustraLian poLicY uncertaintY and corporate investment. Pacific-Basin Finance Journal, 61, 101-341. https://doi.org/10.1016/j.pacfin.2020.101341 google scholar
26. Christidou, M., & Fountas, S. (2018). UncertaintY in the housing market: Evidence from US states. Studies in Nonlinear Dynamics & Econometrics, 22(2). https://doi.org/10.1515/snde-2016-0064 google scholar
27. CLaessens, S., & Djankov, S. (1999). Ownership concentration and corporate performance in the Czech RepubLic. Journal of Comparative Economics, 27(3), 498-513. https://doi.org/10.1006/jcec.1999.1598 google scholar
28. CoLes, J. W., McWiLLiams, V. B., & Sen, N. (2001). An examination of the reLationship of governance mechanisms to performance. Journal of Management, 27(1), 23-50. https://doi.org/10.1177/014920630102700102 google scholar
29. Converse, N. (2018). UncertaintY, capitaL flows, and maturitY mismatch. Journal of International Money and Finance, 88, 260-275. https:// doi.org/10.1016/j.jimonfin.2017.07.013 google scholar
30. Dai, P.-F., Xiong, X., Liu, Z., HuYnh, T. L. D., & Sun, J. (2021). Preventing crash in stock market: The roLe of economic poLicY uncertaintY during COVID-19. Financial Innovation, 7(1), 31. https://doi.org/10.1186/s40854-021-00248-Y google scholar
31. Davis, S. J. (2016). An Index of gLobaL economic poLicY uncertaintY. National Bureau of Economic Research. https://doi.org/10.3386/ W22740 google scholar
32. De La Horra, L. P., Perote, J., & de La Fuente, G. (2022). The impact of economic poLicY uncertaintY and monetarY poLicY on R&D investment: An option pricing approach. Economics Letters, 214, 110413. https://doi.org/10.1016/j.econLet.2022.110413 google scholar
33. Demsetz, H., & Lehn, K. (1985). The structure of corporate ownership: Causes and consequences. Journal of Political Economy, 93(6), 1155-1177. https://doi.org/10.1086/261354 google scholar
34. Demsetz, H., & ViLLaLonga, B. (2001). Ownership structure and corporate performance. Journal of Corporate Finance, 7(3), 209-233. https:// doi.org/10.1016/S0929-1199(01)00020-7 google scholar
35. DetempLe, J., & KitapbaYev, Y. (2020). The vaLue of green energY under reguLation uncertaintY. SSRN Electronic Journal. https://doi.org/ 10.2139/ssrn.3592711 google scholar
36. Dibiasi, A., Abberger, K., SiegenthaLer, M., & Sturm, J. E. (2018). The effects of poLicY uncertaintY on investment: Evidence from the unexpected acceptance of a far-reaching referendum in SwitzerLand. European Economic Review, 104, 38-67. https://doi.org/10. 1016/j.euroecorev.2018.01.002 google scholar
37. DonaLdson, L., & Davis, J. H. (1991). Stewardship theorY or agencY theorY: CEO governance and sharehoLder returns. Australian Journal of Management, 16(1), 49-64. https://doi.org/10.1177/031289629101600103 google scholar
38. Dou, Z., Wei, L., & Wang, J. (2021). Institutional investor, economic policy uncertainty, and innovation investment: Evidence from China. Ekonomie a Management, 24(i), 4-20. https://doi.org/l0.15240/tul/00l/2021-1-001 google scholar
39. Drobetz, W., El Ghoul, S., Guedhami, O., & Janzen, M. (2018). PolicY uncertaintY, investment, and the cost of capital. Journal of Financial Stability, 39, 28-45. https://doi.org/10.1016/j.jfs.2018.08.005 google scholar
40. Duchin, R., Ozbas, O., & SensoY, B. A. (2010). CostlY external finance, corporate investment, and the subprime mortgage credit crisis. Journal of Financial Economics, 97(3), 418-435. https://doi.org/10.1016/j.jfineco.2009.12.008 google scholar
41. Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law and Economics, 26(2), 301-325. https://doi. org/10.1086/467037 google scholar
42. Farooq, U., Ahmed, J., & Khan, S. (2021). Do the macroeconomic factors influence the firm’s investment decisions? A generalized method of moments (GMM) approach. International Journal of Finance and Economics, 26(1), 790-801. https://doi.org/10.1002/ijfe.1820 google scholar
43. Farooque, O. Al, Baghdadi, G., Trinh, H. H., & Khandaker, S. (2023). Stock liquiditY during COVID-19 crisis: A cross-countrY analYsis of developed and emerging economies, and economic policY uncertaintY. Emerging Markets Review, 55, 101025. https://doi.org/10. 1016/j.ememar.2023.101025 google scholar
44. Fazzari, S. M., Hubbard, R. G., Petersen, B. C., Blinder, A. S., & Poterba, J. M. (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, 1, 141-206. https://doi.org/10.2307/2534426 google scholar
45. Feng, X., Luo, W., & Wang, Y. (2023). Economic policY uncertaintY and firm performance: Evidence from China. Journal of the Asia Pacific Economy, 28(4), 1476-1493. https://doi.org/10.1080/13547860.2021.1962643 google scholar
46. Fernândez-Villaverde, J., Guerron-Quintana, P., Kuester, K., & Rubio-Ramîrez, J. (2015). Fiscal volatilitY shocks and economic activitY. American Economic Review, 105(11), 3352-3384. https://doi.org/10.1257/aer.20121236 google scholar
47. Foo, N., Bloch, H., & Salim, R. (2017). Assessing the timing of mining investment under tax policY uncertaintY: The case of the Asia-Pacific region. Mineral Economics, 30(2), 117-139. https://doi.org/10.1007/s13563-017-0106-Y google scholar
48. Gatchev, V. A., Pulvino, T., & Tarhan, V. (2011). The intertemporal and interdependent nature of financial decisions: An applicacation to cash flow sensitivities. Journal of Finance, 65(2), 725-763. https://doi.org/10.2139/ssrn.1344009 google scholar
49. Goel, R. K., & Ram, R. (2013). Economic uncertaintY and corruption: Evidence from a large cross-countrY data set. Applied Economics, 45(24), 3462-3468. https://doi.org/10.1080/00036846.2012.714073 google scholar
50. Grazzi, M., JacobY, N., & Treibich, T. (2013). DYnamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2217594 google scholar
51. Gu, W., Zheng, X., Pan, L., & Li, H. (2018). Economic policY uncertaintY, bank credit, external demand, and corporate investment. Romanian Journal of Economic Forecasting, 21(3), 57-72. google scholar
52. Gulen, H., & Ion, M. (2015). PolicY uncertaintY and corporate investment. Review of Financial Studies, 29(3), 523-564. https://doi.org/doi. org/10.1093/rfs/hhv050 google scholar
53. Gulen, H., & Ion, M. (2016). PolicY uncertaintY and corporate investment. The Review of Financial Studies, 29(3), 523-564. https://doi.org/ 10.1093/RFS/HHV050 google scholar
54. Gupta, G. (2022). CEO’s educational background, economic policY uncertaintY and investment-cash flow sensitivitY: Evidence from India. Applied Economics, 54(5), 568-579. https://doi.org/10.1080/00036846.2021.1967279 google scholar
55. Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9(2), 193-206. https://doi.org/10.5465/amr.1984.4277628 google scholar
56. Han, K. C., & Suk, D. Y. (1998). The effect of ownership structure on firm performance: Additional evidence. Review of Financial Economics, 7(2), 143-155. https://doi.org/10.1016/S1058-3300(99)80150-5 google scholar
57. HandleY, K., & Limâo, N. (2015). Trade and investment under poliCY uncertaintY: TheorY and firm evidence. American EconomicJournal: Economic Policy, 7(4), 189-222. https://doi.org/10.1257/pol.20140068 google scholar
58. Haniffa, R. M., & Cooke, T. E. (2002). Culture, corporate governance and disclosure in MalaYsian corporations. Abacus, 38(3), 317-349. https://doi.org/10.1111/1467-6281.00112 google scholar
59. Hartman, R. (1972). The effects of price and cost uncertaintY on investment. Journal of Economic Theory, 5(2), 258-266. https://doi.org/ 10.1016/0022-0531(72)90105-6 google scholar
60. Herrmann, P., & Datta, D. K. (2002). CEO successor characteristics and the choice of foreign market entrY mode: An empirical studY. Journal of International Business Studies, 33(3), 551-569. https://doi.org/10.1057/palgrave.jibs.8491031 google scholar
61. Heshmati, A., & Lööf, H. (2008). Investment and performance of firms: Correlation or causalitY? Corporate Ownership and Control, 6(2), 268-282. https://doi.org/10.22495/cocv6i2c2p2 google scholar
62. Ho, S. W., Zhang, J., & Zhou, H. (2018). Hot moneY and quantitative easing: The spillover effects of U.S. monetarY policY on the Chinese economY. Journal of Money, Credit and Banking, 50(7), 1543-1569. https://doi.org/10.1111/jmcb.12501 google scholar
63. Hsu, W. T., Chen, H. L., & Cheng, C. Y. (2013). Internationalization and firm performance of SMEs: The moderating effects of CEO attributes. Journal of World Business, 48(1), 1-12. https://doi.org/l0.1016/jjwb.2012.06.001 google scholar
64. IlYas, M., Khan, A., Nadeem, M., & Suleman, M. T. (2021). Economic policY uncertaintY, oil price shocks and corporate investment: Evidence from the oil industrY. Energy Economics, 97, 105193. https://doi.org/10.1016/j.eneco.2021.105193 google scholar
65. International MonetarY Fund. (2020). State-owned enterprises: The other government. Fiscal Monitor: Policies to Support People During the COVID-19 Pandemic, April, 47-74. google scholar
66. Jensen, M. C., & Meckling, W. H. (1976). TheorY of the firm: Managerial behavior, agencY costs and ownership structure. Journal of Financial Economics, 3, 305-360. https://doi.org/10.4159/9780674274051-006 google scholar
67. Jeong, B. (2002). PolicY uncertaintY and long-run investment and output across countries. International Economic Review, 43(2), 363392. https://doi.org/10.2139/ssrn.1539487 google scholar
68. Jia, J., & Li, Z. (2020). Does external uncertaintY matter in corporate sustainabilitY performance? Journal of Corporate Finance, 65, 101743. https://doi.org/10.1016/j.jcorpfin.2020.101743 google scholar
69. KellY, M. (1991). The value of the option to “wait and see.” Economics Letters, 36(2), 147-151. https://doi.org/10.1016/0165-1765(91)90180-S google scholar
70. Khan, M. A., Qin, X., & Jebran, K. (2019). Does uncertaintY influence the leverage-investment association in Chinese firms? Research in International Business and Finance, 50, 134-152. https://doi.org/10.1016/j.ribaf.2019.04.006 google scholar
71. Knight, F. H. (1922). Risk, uncertaintY and profit. The Quarterly Journal of Economics, 36(4), 682. https://doi.org/10.2307/1884757 google scholar
72. LeahY, J. V., & Whited, T. M. (1996). The effect of uncertaintY on investment: Some stYlized facts. Journal of Money, Credit and Banking, 28(1), 64-83. https://doi.org/10.2307/2077967 google scholar
73. Lee, K., Jeon, Y., Samarbakhsh, L., & Kim, I. (2021). Chinese economic policY uncertaintY and U.S. corporate investment. International Review of Finance, 21(4), 1519-1528. https://doi.org/10.1111/irfi.12335 google scholar
74. Liu, G., & Zhang, C. (2020). Economic policY uncertaintY and firms’ investment and financing decisions in China. China Economic Review, 63, 101279. https://doi.org/10.1016/j.chieco.2019.02.007 google scholar
75. Liu, J., & Wang, H. (2022). Economic policY uncertaintY and the cost of capital. International Review of Financial Analysis, 81, 102070. https://doi.org/10.1016/j.irfa.2022.102070 google scholar
76. Liu, R., He, L., Liang, X., Yang, X., & Xia, Y. (2020). Is there anY difference in the impact of economic policY uncertaintY on the investment of traditional and renewable energY enterprises? - A comparative studY based on regulatorY effects. Journal of Cleaner Production, 255, 120102. https://doi.org/10.1016/j.jclepro.2020.120102 google scholar
77. Makosa, L., Jie, S., Bonga, W. G., Jachi, M., & Sitsha, L. (2021). Does economic policY uncertaintY aggravate financial constraints? South African Journal of Accounting Research, 35(2), 151-166. https://doi.org/10.1080/10291954.2021.1885233 google scholar
78. Martinez-Carrascal, C., & Ferrando, A. (2011). The impact of financial position on investment: An analYsis for non-financial corporations in the Euro area. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1273546 google scholar
79. McDonald, R., & Siegel, D. (1986). The value of waiting to invest. Quarterly Journal of Economics, 101(4), 707-727. https://doi.org/10. 2307/1884175 google scholar
80. Michael, J. (1993). The modern industrial revolution, exit, and the failure of internal control sYstems. The Journal of Finance, 48(3), 831880. https://doi.org/10.1111/j.1540-6261.1993.tb04022.x google scholar
81. Mueller, P., Tahbaz-Salehi, A., & Vedolin, A. (2017). Exchange rates and monetarY policY uncertaintY. Journal of Finance, 72(3), 1213-1252. https://doi.org/10.1111/jofi.12499 google scholar
82. MYers, S. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147-175. https://doi.org/10.1016/0304-405X (77)90015-0 google scholar
83. Nicholas, B. (2009). The impact of uncertaintY shocks. Econometrica, 77(3), 623-685. https://doi.org/10.3982/ECTA6248 google scholar
84. Nielsen, B. B., & Nielsen, S. (2011). The role of top management team international orientation in international strategic decision-making: The choice of foreign entrY mode. Journal of World Business, 46(2), 185-193. https://doi.org/10.1016/j.jwb.2010.05.003 google scholar
85. Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3-46. https://doi.org/10.1016/s0304-405x(99)00003-3 google scholar
86. Pâstor, L, & Veronesi, P. (2012). UncertaintY about government poliCY and stock prices. Journal of Finance, 67(4), 1219-1264. https://doi. org/10.1111/j.1540-6261.2012.01746.x google scholar
87. Phan, D. H. B., IYke, B. N., Sharma, S. S., & Affandi, Y. (2021). Economic policY uncertaintY and financial stabilitY-Is there a relation? Economic Modelling, 94, 1018-1029. https://doi.org/10.1016/j.econmod.2020.02.042 google scholar
88. Rechner, P. L., & Dalton, D. R. (1991). CEO dualitY and organizational performance: A longitudinal analYsis. Strategic Management Journal, 12(2), 155-160. https://doi.org/10.1002/smj.4250120206 google scholar
89. Rodrik, D. (1991). PoIİcy uncertaintY and private investment in developing countries. Journal of Development Economics, 36(2), 229-242. https://doi.org/10.1016/0304-3878(91)90034-S google scholar
90. Sean ClearlY. (2016). The relationship between firm investment and financial status. The Journal of Finance, 54(2), 673-692. google scholar
91. Titman, S. (1985). Urban land prices under uncertaintY. In American Economic Review (Vol. 75, Issue 3, pp. 505-514). American Economic Association. https://doi.org/10.2307/1814815 google scholar
92. Wang, Y., Chen, C. R., & Huang, Y. S. (2014). Economic policY uncertaintY and corporate investment: Evidence from China. Pacific-Basin Finance Journal, 26, 227-243. https://doi.org/10.1016/j.pacfin.2013.12.008 google scholar
93. Wu, J., Zhang, J., Zhang, S., & Zou, L. (2020). The economic policY uncertaintY and firm investment in Australia. Applied Economics, 52(31), 3354-3378. https://doi.org/10.1080/00036846.2019.1710454 google scholar
94. Xie, G., Chen, J., Hao, Y., & Lu, J. (2021). Economic policY uncertaintY and corporate investment behavior: Evidence from China’s five-Year plan cYcles. Emerging Markets Finance and Trade, 57(10), 2977-2994. https://doi.org/10.1080/1540496X.2019.1673160 google scholar
95. Yan, M., & Shi, K. (2021). The impact of high-frequencY economic policY uncertaintY on China’s macroeconomY: evidence from mixed-frequencY VAR. Economic Research-EKonomsKa Istrazivanja, 34(i), 3201-3224. https://doi.org/l0.1080/l331677X.2020.1870519 google scholar