Analysing the Joint Impact of Economic Policy Uncertainty and Growth Opportunities on Corporate Investments in Developed and Developing Economies

Muhammad Shafiq Khan; Malik Fahim Bashir; Tahir shah‎

doi:10.25159/1998-8125/18044

Authors

Muhammad Shafiq Khan Comsats University Islamabad, Abbottabad Campus https://orcid.org/0009-0001-6812-5067
Malik Fahim Bashir Comsats University Islamabad https://orcid.org/0000-0002-6324-6855
Tahir Shah University of Wah

DOI:

https://doi.org/10.25159/1998-8125/18044

Keywords:

economic policy uncertainty (EPU), corporate investments, growth opportunities, ownership concentration, SOEs and non-SOEs

Abstract

Background: Economic policy uncertainty (EPU) arises from unanticipated changes in economic policies. The changes could affect important trading, financial, regulatory, and monetary policies. Several factors contribute to EPU, such as abrupt adjustments to monetary policy, unstable foreign currency markets, poor GDP growth, elevated prices, and various local and international events. EPU adversely influences national productivity, firm investment, employment creation, consumer spending, and the stock market.

Aim: This study aims to explore the effect of EPU on firms’ investments in developed and developing economies. It also examines how firm attributes, such as ownership concentration and state ownership, influence this relationship. In addition, the study investigates the conditional impact of EPU and growth opportunities on firms’ investments.

Setting: The study focused on a large panel of firms from 27 countries, covering the period 2008 to 2021, with a sample of 11,718 firm-level observations.

Method: This study employed a two-way fixed effects econometric model for analysis.

Results: The findings indicate that EPU adversely impacts the investments of companies operating in developed economies, non-state-owned firms, and firms with dispersed shareholding. Yet, growth opportunities can mitigate the adverse effects of EPU on firm investment.

Conclusion: The results imply that policymakers should formulate and implement transparent economic policies to ensure stability. From firms’ perspective, it is important to develop a contingency plan to counter the adverse effects of EPU on their investments.

Contribution: The results have important implications for policymakers and firms, as they highlight the significance of stable economic policies for firm investment.

Author Biographies

Malik Fahim Bashir, Comsats University Islamabad

I have over 15 years of teaching experience. Currently, I am working as an Associate Professor at the Department of Management Sciences at COMSATS University Islamabad-Abbottabad campus. I earned my Doctorate in Economics from Huazhong University of Sciences & Technology Wuhan, China in 2014 and an M.Phil. in economics from Quaid-i-Azam University Islamabad in 2008. I also hold a Master's & BS in Economics from the International Islamic University Islamabad. I have authored more than 25 peer-reviewed publications, and my research interests include Macroeconomics, Institutional Economics, and Financial Economics. I have supervised 31 MS and 13 Undergraduate research theses. currently, I am mentoring two PhD and three MS students.

Tahir Shah, University of Wah

Senior Lecturer, University of Wah, Pakistan

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