Capital Reallocation and Firm-Level Productivity Under Political Uncertainty

Abstract

Does policy uncertainty affect productivity? Policy uncertainty creates delays as firms await new information about prices, costs and other market conditions before committing resources.Such delays can have real consequences on firms' productivity and corporate decisions. First, we find that economic policy uncertainty has a negative impact on firm-level productivity. Second, debt magnifies the adverse effects of policy uncertainty on productivity, but access to external financing during periods of significant policy uncertainty shocks has a positive impact on firmlevel productivity. Third, Policy uncertainty is positively related to cash holdings but this effect is mostly driven by highly productive firms and by firms with higher levels of irreversible investments since these firms face higher opportunity costs in future states. The three findings are robust to various specifications and provide an affirmative answer to the opening question.

Public governance and firm total factor productivity: Evidence from a quasi‐natural event in China

“…As shown in hypothesis development, GEs elimination may be associated with a significant increase in environmental uncertainty, which in turn reduces firm TFP (Bloom, 2009; Kobayashi, 2006; Li et al., 2021; Ren et al., 2022; Tut & Cao, 2021). We check the validity of the uncertainty channel using two subsample tests.…”

“…For one thing, we speculate that GEs elimination is associated with a significant increase in environmental uncertainty, which in turn reduces firm TFP (Bloom, 2009; Kobayashi, 2006; Li et al., 2021; Ren et al., 2022; Tut & Cao, 2021). Theoretically, GEs elimination introduces three types of environmental uncertainty.…”

“…3 Details of the "Notice" can be seen by visiting the official website: http://www.gov.cn/zhengce/2018-01/24/ content_5260130.htm. et al, 2022;Tut & Cao, 2021). Theoretically, GEs elimination introduces three types of environmental uncertainty.…”