Corporates' strategic responses to economic policy uncertainty in China

Abstract

Using a novel news-based index of economic policy uncertainty, this paper studies the impact of economic policy uncertainty on corporate strategic positioning and corporate risk in China from 2009 to 2015. The study also investigates the impact of corporate strategic positioning on corporate risk. The results show that corporate strategic positioning and economic policy uncertainty have a significant positive impact on corporate risk. The results also explain that economic policy uncertainty increases the market risk of the firms irrespective of their corporate strategy. However, it increases the business risk of prospector firms and decreases the business risk of defensive firms. The study may help the firms to formulate and improve their strategic positioning while considering economic policy uncertainty. Our results are robust to alternate proxies of economic policy uncertainty and corporate risk.

How to deal with policy uncertainty to attain sustainable growth: the role of corporate governance

“…Jin et al (2019) find that EPU increases the stock price crash risk of Chinese firms. Mirza and Ahsan (2020) find that EPU increases the market as well as the business risk of Chinese firms.…”

“…Although both competing theories have an opposite point of view, the objectives explained by both theories can be achieved by the sustainable growth (SG) of the corporations. Achieving SG requires a sustainable operating environment; however, changing economic policies creates uncertainty and consequently increases the risk and cost of capital of the corporations (Mirza and Ahsan, 2020).…”

“…This study proposes a link between EPU and CG as a control mechanism to explore how the corporations handle policy uncertainty and attain SG. We investigate this link by using a data set of Chinese non-financial listed firms as China is the most significant emerging economy and a unique market because of its transition stage from a planned economy to a market-based economy (Mirza and Ahsan, 2020). Empirical studies also provide evidence of the significance of the Chinese economy and investigated the impact of EPU on various firm-level indicators.…”

The impact of sustainability (environmental, social, and governance) disclosure and board diversity on firm value: The moderating role of industry sensitivity

“…The core objective of profit making organizations, on the other hand, is to optimize their firm value (Brealey, Myers, Allen, & Mohanty, ). However, the firms do respond to their operating environment to achieve their objective of value maximization (Mirza & Ahsan, ). The spending that is carried out by firms for sustainable development may reduce the profits of the firms and, consequently, may decrease the firm value.…”

The resilience of green firms in the twirl of COVID‐19: Evidence from S&P500 Carbon Efficiency Index with a Fourier approach

“…Second, it provides new insights into low‐carbon companies' economic endurance capacity by estimating the impact of economic uncertainty on the S&P500 CEI. It should be emphasised that the uncertainty of the economic environment plays a vital role in the strategy formulation and management decisions of firms (Mirza & Ahsan, 2020 ). Third, it estimates the impact of oil prices and governmental response on the S&P500 CEI.…”