Policy Uncertainty and Corporate Investment

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ID: 291626
2015
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Abstract
Using a news-based index of policy uncertainty, we document a strong negative relationship between firm-level capital investment and the aggregate level of uncertainty associated with future policy and regulatory outcomes. More importantly, we find evidence that the relation between policy uncertainty and capital investment is not uniform in the cross-section, being significantly stronger for firms with a higher degree of investment irreversibility and for firms that are more dependent on government spending. Our results lend empirical support to the notion that policy uncertainty can depress corporate investment by inducing precautionary delays due to investment irreversibility. Received January 2, 2014; accepted July 27, 2015 by Editor David Denis.
Reference Key
openalex_W3122090684 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Huseyin Gulen, Mihai Ion
Journal review of financial studies
Year 2015
DOI
10.1093/rfs/hhv050
URL
https://academic.oup.com/rfs/article-pdf/29/3/523/24450983/hhv050.pdf
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