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Identifying the Dynamic Influence of Economic Policy Uncertainty on Enterprise Investment Using Functional Data Analysis

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  • Deqing Wang
  • Tianqi Liu
  • Xuemei Li
  • Yi Huang
  • Yuanhang Zhou
  • Aditya Rio Prabowo

Abstract

Economic policy uncertainty (EPU) is one of the important influencing factors for enterprise investment. By its nature, enterprise investment is dynamically affected by uncertainty. We examine the time-varying impact of EPU on the level of corporate investment by introducing functional data analysis (FDA). Based on smoothing the discrete data of 106 China Securities Index (CSI) 300 firms into the continuous curve, we examine the dynamic relationship between EPU on corporate investment level and investment efficiency. In addition, we explore the effect of EPU on the level of corporate investment and investment efficiency after grouping regressions in a functional model. The findings show the following: Firstly, there is a suppressive effect of rising EPU on the level of corporate investment. However, when the EPU is low, it has a significant promoting effect on the level of corporate investment and gradually decreases with the increase of uncertainty level. Secondly, elevated EPU has a promoting effect on the efficiency of corporate investment. The inhibitory effect on firm investment efficiency is observed at low EPU and changes to a promotional effect at high EPU. Thirdly, increasing EPU has a greater inhibitory role in the investment level of nonstate firms and a greater promotional role in the investment efficiency of state firms. We seek to expand the research on the impact of macrouncertainty on microfirm investment and introduce FDA to provide a meaningful reference to solve the current controversial issue.

Suggested Citation

  • Deqing Wang & Tianqi Liu & Xuemei Li & Yi Huang & Yuanhang Zhou & Aditya Rio Prabowo, 2022. "Identifying the Dynamic Influence of Economic Policy Uncertainty on Enterprise Investment Using Functional Data Analysis," Mathematical Problems in Engineering, Hindawi, vol. 2022, pages 1-15, March.
    • Handle: RePEc:hin:jnlmpe:7822710
    DOI: 10.1155/2022/7822710
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    Cited by:

    1. Sarfraz Hussain & Rosalan Ali & Walid Emam & Yusra Tashkandy & Pradeep Mishra & Mochammad Fahlevi & Adelajda Matuka, 2023. "Economic Policy Uncertainty and Firm Value: Impact of Investment Sentiments in Energy and Petroleum," Sustainability, MDPI, vol. 15(12), pages 1-28, June.

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