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The joint effects of economic policy uncertainty and firm characteristics on capital structure: Evidence from US firms

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  • Li, Xiao-Ming
  • Qiu, Mei

Abstract

This study explores empirically how economic policy uncertainty (EPU) and firm characteristics jointly affect the capital structure decisions of US firms. Using the most comprehensive measure of EPU available, we conceive a research framework by allowing EPU to interact with firm characteristics in dynamic panel regression models, and control for general economic uncertainties and financial crises. Our results reveal that EPU and firm characteristics are jointly important in shaping companies’ debt-financing decisions. The marginal effects of a firm’s characteristics on debt ratios are not constant but change with EPU even in their signs. The marginal effect of EPU on debt ratios is not uniform in the cross-section due to firms having different characteristics and can be positive for some firms while negative for others. However, on average, a rise in EPU would cause economically significant declines in the debt ratios of firms.

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  • Li, Xiao-Ming & Qiu, Mei, 2021. "The joint effects of economic policy uncertainty and firm characteristics on capital structure: Evidence from US firms," Journal of International Money and Finance, Elsevier, vol. 110(C).
    • Handle: RePEc:eee:jimfin:v:110:y:2021:i:c:s0261560620302357
    DOI: 10.1016/j.jimonfin.2020.102279
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    Cited by:

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    2. Balcilar, Mehmet & Ozdemir, Zeynel Abidin & Ozdemir, Huseyin & Aygun, Gurcan & Wohar, Mark E., 2022. "The macroeconomic impact of economic uncertainty and financial shocks under low and high financial stress," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    3. Dawood Ashraf & Mohsin Khawaja & M. Ishaq Bhatti, 2022. "Raising capital amid economic policy uncertainty: an empirical investigation," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-32, December.
    4. Cho, Dooyeon & Im, Pullip, 2023. "Effects of monetary policy uncertainty on debt financing: Evidence from Korean heterogeneous firms," Journal of International Money and Finance, Elsevier, vol. 139(C).
    5. Huang, Ho-Chuan & Wang, Xiuhua & Xiong, Xin, 2022. "When macro time series meets micro panel data: A clear and present danger," Energy Economics, Elsevier, vol. 114(C).
    6. Chuanzhen Li & Liang Zhao & Yiwen Zhang, 2024. "Economic policy uncertainty and cash dividend policy: evidence from China," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-17, December.
    7. Tabash, Mosab I. & Farooq, Umar & Ashfaq, Khurram & Tiwari, Aviral Kumar, 2022. "Economic policy uncertainty and financing structure: A new panel data evidence from selected Asian economies," Research in International Business and Finance, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    Economic policy uncertainty; Firm characteristics; Capital structure; US firms;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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