The economic policy uncertainty and firm investment in Australia

Ji George Wu · Jing Zhang · Shiyu Zhang · Liping Zou

79 citations0/0 files storedApplied Economics

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Corporate Finance and Governance Capital Investment and Risk Analysis Market Dynamics and Volatility

Abstract

This paper examines the impact of economic policy uncertainty (EPU) on the Australian firm investment activity. We find a significant positive relationship between the EPU and the firm investment over 2002 to 2017 period. Our main results remain unchanged after several endogeneity tests. Further analysis reveals that this relationship becomes pronounced for firms if their headquarters located in small states, firms with more tangible assets, higher operating cash flows and cash holdings, higher profits and leverage, but firms with fewer dividend payouts. Our paper sheds lights on the unique attribute of the impact of the EPU on the Australian firm investment activity and offers important policy and managerial implications.

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References

2016Measuring Economic Policy Uncertainty*1980Irreversibility, Uncertainty, and Cyclical Investment 2006Financial Constraints Risk 2015Measuring Uncertainty 2015Policy Uncertainty and Corporate Investment 1989Entry and Exit Decisions under Uncertainty 2012Uncertainty about Government Policy and Stock Prices 2012Political Uncertainty and Corporate Investment Cycles

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