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| Research on the Effect of Policy Uncertainty on Corporate Financing and Investment Behavior |
| CAI Guowei, WU Huaqiang, XU Xinzhong
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Lingnan College of Sun Yat-sen University;
Guanghua School of Management, Peking University |
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Abstract Based on the Chinese A-Share Listed Companies quarterly data and the change rate of local government officials in 31 province-level regions from 2003 to 2013, this paper studies the impact of policy uncertainty on corporate financing and investment by using the change rate of local government officials as the proxy of policy uncertainty. We find that policy uncertainty is strongly negatively related to debt financing, but not to equity financing. There exist two channels through which the policy uncertainty effects the corporate investment. Policy uncertainty cuts investment 1) directly by reducing financing; 2) indirectly by reducing the coefficient of financing on investment. The later means that, the higher policy uncertainty, the smaller positive coefficient of debt and equity financing on investment. Further study finds that the indirect channel significantly exists among policy closely related companies, such as the state-owned and the big companies, but not significantly exists among others. Financing availability is one of the most important preconditions that economic policy uncertainty effects investment. During the period of high financing availability, economic policy uncertainty significantly lower corporate investment, but not that significantly during the period of low financing availability. So, reducing policy uncertainty and strengthening the long-term system construction play an important role in keeping steady economy growth.
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Received: 25 April 2017
Published: 29 October 2018
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