The impact of policy, political and economic uncertainty on corporate capital investment in the emerging markets of Eastern Europe and Turkey

Azimli, Asil

doi:10.1016/j.ecosys.2022.100974

Cited by 11 publications

(6 citation statements)

References 61 publications

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“…The findings of this study contribute to the literature in several ways. First, this study contributes to the literature on the impact of economic conditions and uncertainty on investment behaviour, as it supports the evidence that worsening economic conditions affect firm investment negatively (Schoder 2013;Jeon and Nishihara 2014;Wang et al 2014;Gulen and Ion 2016;Chen et al 2020;Azimli 2022), using a new context that has not been examined before which can be viewed as out-of-sample evidence to test whether this outcome only pertains to developed and transition economies. In addition, this study contributes to the literature on investment-cash flow sensitivity in documenting that firms in Jordan, a developing market, still exhibit investment-cash flow sensitivity, unlike firms in many developed markets (Brown and Petersen 2009;Larkin et al 2018;Machokoto et al 2021;Moshirian et al 2017).…”

Section: Introductionsupporting

confidence: 68%

“…A growing literature examines the impact of uncertainty related to economic, political and policy shocks on firm-level investment decisions with the assumption that uncertainty has a negative impact on firm-level investment (Azimli 2022;Chen et al 2020;Gulen and Ion 2016;Wang et al 2014). The rationale behind this assumption originates from the real-option theory, which shows that because capital investments are costly and irreversible, the higher the degree of uncertainty the larger the value of the option of waiting for uncertainty to resolve (Gulen and Ion 2016;Wang et al 2014) and therefore firms reduce their current investment spending as uncertainty increases.…”

Section: Hypotheses Motivationmentioning

confidence: 99%

“…Other studies examine the impact of economic conditions on corporate investments, with a focus on conditions of financial nature such as monetary policy, interest and exchange rates, credit demand and financial development (Masuda 2015;Tang et al 2022). In addition, there is emerging research that examines firm-level investment behaviour over the business cycle (Jeon and Nishihara 2014;Schoder 2013) and the impact of economic uncertainty on firm investment (Azimli 2022;Chen et al 2020;Gulen and Ion 2016;Wang et al 2014). The premise of this research is that economic uncertainty discourages corporate investments because of the presence of adjustment costs or the irreversibility of investment costs (Gulen and Ion 2016;Wang et al 2014).…”

Section: Introductionmentioning

confidence: 99%

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Credit Constraints and Investment-Cash Flow Sensitivity in Declining Economic Conditions: The Role of Reliance on Bank Debt

Tayem

2022

Economies

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This paper examines the sensitivity of investment to cash flow in declining economic conditions, focusing on the impact of a firm’s reliance on bank debt. Using the context of Jordan, a developing Middle East and North Africa (MENA) country, the study utilizes the standard Q theory of investment augmented by cash flow, leverage, and liquidity. Then, it allows for differential loading on the cash flow coefficient pre- and post-2008, the year that marks the beginning of declining conditions, and by categorizing companies based on their reliance on bank debt, measured by having access to a bank line of credit. Using alternative estimation specifications, the findings indicate that firms’ investments decreased significantly in episodes of declining conditions. In addition, the findings indicate that firms’ investments exhibited more sensitivity to cash flow during declining conditions, especially for firms with access to lines of credit. The latter finding suggests that firms reliant on bank debt could not compensate for the credit shortages by switching to other sources of external funding and therefore they were compelled to use more of their internally generated funds to finance their investments.

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Section: Introductionsupporting

confidence: 68%

Section: Hypotheses Motivationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Credit Constraints and Investment-Cash Flow Sensitivity in Declining Economic Conditions: The Role of Reliance on Bank Debt

Tayem

2022

Economies

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“…Although Azimli (2022) determined an insignificant relationship between political and uncertainty and corporate capital investment in developing countries, previous studies have shown that EPU affects the level of corporate capital investment (Cui et al ., 2021; Kang et al ., 2014; Wang et al ., 2014). Wang et al.…”

Section: Theoretical Framework and Hypotheses Developmentmentioning

confidence: 86%

Effects of policy and economic uncertainty on investment activities and corporate financial reporting: a study of developing countries in Asia-Pacific

Kurniawan

Amanati

Nugroho

et al. 2023

ARA

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PurposeThis study investigates the impact of government and economic policy uncertainty (EPU) on companies' business operations, especially risk-taking tendencies and corporate financial reporting quality (FRQ).Design/methodology/approachThe study employs the generalised least squares regression model. The final sample comprised 27,376 company-year observations from eight countries in the Asia-Pacific region.FindingsEPU has a negative and significant effect on investment activity and FRQ. Higher EPU leads to a decline in investment and FRQ.Research limitations/implicationsThere are several limitations in this study. First, the authors used abnormal investments to measure investments, without considering the degree of irreversibility investment objectives. Second, although control variables are included at the company and country levels, they may only partially control for companies' mitigation effects. Third, the sample is limited to developing countries with unique characteristics in Asia-Pacific; therefore, the findings cannot be generalised.Practical implicationsThe findings can help investors, analysts and regulators evaluate EPU's impact on companies' business activities by offering an overview regarding the decline in investment efficiency and FRQ. The results can also be used as input for regulators in formulating policies that encourage companies to regulate investment levels without harming other stakeholders and maintain FRQ during periods of uncertainty.Originality/valueThis research provides intriguing insights into EPU's effects on companies' investment activity and FRQ in developing countries, which are sensitive to changes in macroeconomic conditions.

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“…Uncertainty is a complex phenomenon that influences various aspects of the economy, including supply and demand dynamics, production decisions, consumer behavior and other economic agents’ decisions (Junttila and Vataja, 2018). During uncertain situations, economic agents cannot predict a disturbance’s conditional volatility (Jurado et al , 2015; Azimli, 2022).…”

Section: Introductionmentioning

confidence: 99%

Investigation into the dynamic relationships between global economic uncertainty and price volatilities of commodities, raw materials, and energy

Ashena,

Laal Khezri,

Shahpari

2023

AEA

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Purpose This paper aims to deepen the understanding of the relationship between global economic uncertainty and price volatility, specifically focusing on commodity, industrial materials and energy price indices as proxies for global inflation, analyzing data from 1997 to 2020. Design/methodology/approach The dynamic conditional correlation generalized autoregressive conditional heteroscedasticity model is used to study the dynamic relationship between variables over a while. Findings The results demonstrated a positive relationship between commodity prices and the global economic policy uncertainty (GEPU). Except for 1999–2000 and 2006–2008, the results of the energy price index model were very similar to those of the commodity price index. A predominant positive relationship is observed focusing on the connection between GEPU and the industrial material price index. The results of the pairwise Granger causality reveal a unidirectional relationship between the GEPU – the Global Commodity Price Index – and the GEPU – the Global Industrial Material Price Index. However, there is bidirectional causality between the GEPU – the Global Energy Price Index. In sum, changes in price indices can be driven by GEPU as a political factor indicating unfavorable economic conditions. Originality/value This paper provides a deeper understanding of the role of global uncertainty in the global inflation process. It fills the gap in the literature by empirically investigating the dynamic movements of global uncertainty and the three most important groups of prices.

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The impact of policy, political and economic uncertainty on corporate capital investment in the emerging markets of Eastern Europe and Turkey

Cited by 11 publications

References 61 publications

Credit Constraints and Investment-Cash Flow Sensitivity in Declining Economic Conditions: The Role of Reliance on Bank Debt

Credit Constraints and Investment-Cash Flow Sensitivity in Declining Economic Conditions: The Role of Reliance on Bank Debt

Effects of policy and economic uncertainty on investment activities and corporate financial reporting: a study of developing countries in Asia-Pacific

Investigation into the dynamic relationships between global economic uncertainty and price volatilities of commodities, raw materials, and energy

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