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Effects of Policy Uncertainty on Firm-Level Productivity

Author

Listed:
  • Melanie Cao

    (Schulich School of Business, York University, Toronto, ON M3J 1P3, Canada)

  • Daniel Tut

    (Ted Rogers School of Management, Toronto Metropolitan University, Toronto, ON M5B 2K3, Canada)

Abstract

Does policy uncertainty affect productivity? Policy uncertainty creates delays on decision-making as firms await new information about prices, costs, and other market conditions before committing resources. Such delays can have real consequences on firms’ productivity and corporate decisions. We find that economic policy uncertainty has a negative impact on firm-level productivity. We further show that the negative impact is alleviated by firms’ high cash holdings or prior committed irreversible investments. These findings are robust to various specifications.

Suggested Citation

  • Melanie Cao & Daniel Tut, 2024. "Effects of Policy Uncertainty on Firm-Level Productivity," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 14(03), pages 1-34, September.
    • Handle: RePEc:wsi:qjfxxx:v:14:y:2024:i:03:n:s2010139224500101
    DOI: 10.1142/S2010139224500101
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    More about this item

    Keywords

    Policy uncertainty; total factor productivity; leverage; cash; business cycles;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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