Economic Policy Uncertainty, Financial Leverage, and Corporate Investment: Evidence from U.S. Firms

Almustafa, Hamza; Jabbouri, Imad; Kijkasiwat, Ploypailin

doi:10.3390/economies11020037

Cited by 16 publications

(3 citation statements)

References 67 publications

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“…Business groups with low internal controls in China have been reported to have centralised borrowing patterns under EPU. Almustafa et al (2023) suggest that EPU negatively affects the leverage of NYSE-listed firms. However, this study did not investigate the impact of the pandemic.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

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Impact of economic policy uncertainty on financial flexibility before and during the COVID-19 pandemic

Dalwai

2023

JABES

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PurposeThis study examines the influence of economic policy uncertainty on financial flexibility before and during the coronavirus disease 2019 (COVID-19) pandemic. Few prior studies have examined this association specifically for debt and cash flexibility.Design/methodology/approachUsing quarterly data from 2016 to 2022, 1014 observations were collected from the S&P Capital IQ database for listed tourism companies in India. The pre-pandemic period is defined as 2016 Q1 to 2020 Q1, whereas the pandemic period is from 2020 Q2 to 2022 Q3. The data are analysed using ordinary least squares, probit, logit and difference-in-difference (DID) estimation.FindingsThe evidence of this study suggests a negative association of economic policy uncertainty with debt flexibility during the COVID-19 pandemic. The findings also suggest that COVID-19 induced economic policy uncertainty results in high cash flexibility. This meets the expectations for the crisis period, as firms are likely to hold more cash and less debt capacity to manage their operations. The results are robust for various estimation techniques.Research limitations/implicationsThis study is limited to one emerging country and is specific to one non-financial sector. Future research could extend to more emerging countries and include other non-financial sector companies.Practical implicationsThe findings of this research are useful for tourism sector managers as they can effectively manage their cash and debt flexibility during crisis periods. They will need to prioritise cash flexibility over debt flexibility to manage operations effectively. Policymakers need to provide clear and stable economic policies to help firms manage their debt levels during a crisis.Originality/valueTo the best of the author's knowledge, no existing studies have investigated the influence of economic policy uncertainty on the financial flexibility of tourism companies before and during the COVID-19 pandemic. Furthermore, this study establishes a novel set of critical determinants, such as economic policy uncertainty.

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Section: Hypothesis Developmentmentioning

confidence: 99%

“…Thus, Debt FF1 is a dichotomous variable. Prior studies (Almustafa et al, 2023;Dalwai and Sewpersadh, 2023; have also used leverage as a measure of financial flexibility; thus, this study uses the same as a second measure (Debt FF2).…”

Section: Financial Flexibilitymentioning

confidence: 99%

Impact of economic policy uncertainty on financial flexibility before and during the COVID-19 pandemic

Dalwai

2023

JABES

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“…The literature is relatively silent on this relationship. Furthermore, most of the previous studies that have examined the impact of economic policy uncertainty on firm corporate performance and behavior have focused on publicly listed firms and neglected private firms (Almusta et al ., 2023; Ahsan et al ., 2022; Ahsan and Qureshi, 2021; Makosa et al ., 2021; Xu, 2020; Iqbal et al ., 2020). This paper fills this gap by focusing on private firms.…”

Section: Introductionmentioning

confidence: 99%

The nexus between economic policy uncertainty and access to finance: a study of developing countries

Farooq

Jabbouri

Naili

2023

IJMF

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PurposeThis paper attempts to document the effect of economic uncertainty on financing constraints faced by private firms.Design/methodology/approachOrdered logistic regression is used to analyze the data of private firms from 101 developing countries. The data was provided by the World Bank's Enterprise Surveys and was gathered during the period between 2006 and 2019.FindingsThe findings show that firms headquartered in countries with high economic uncertainty face more financing constraints than firms headquartered in countries with low economic uncertainty. The authors argue that the increase in economic uncertainty allows capital providers to adjust their lending decisions by reducing the provision of capital to firms. The paper also shows that firms headquartered in countries with strong institutional infrastructure and well-functioning firms are less likely to be affected by economic uncertainty while accessing finance.Practical implicationsThe findings would help managers, investors, regulators, and policymakers better understand the implication of economic policy uncertainty on the real economy. This study also sheds the light on the importance of minimizing volatility, ambiguity, and randomness in governmental decisions and policies. Regardless of the pertinence of these policies, arbitrariness surrounding their development and communication can limit their effectiveness and produce unwanted effects.Originality/valueThis paper is closely related to prior literature that documents the behavior of credit providers and investors (the supply side) during the periods of economic uncertainty. The authors differ from this strand of literature by taking the perspective of firms – the demand side.

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Nexus among Indian business cycle–financial cycle and Policy Uncertainty Index

Kumar,

Paramanik,

Kumar

2023

SN Bus Econ

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Economic Policy Uncertainty, Financial Leverage, and Corporate Investment: Evidence from U.S. Firms

Cited by 16 publications

References 67 publications

Impact of economic policy uncertainty on financial flexibility before and during the COVID-19 pandemic

Impact of economic policy uncertainty on financial flexibility before and during the COVID-19 pandemic

The nexus between economic policy uncertainty and access to finance: a study of developing countries

Nexus among Indian business cycle–financial cycle and Policy Uncertainty Index

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