The DOI matches its Crossref record; 102 of the 102 references it cites were found in a registry or an index.
Policy uncertainty, investment, and the cost of capital
Open accessAbstract
Abstract We examine the effect of economic policy uncertainty on the relation between investment and the cost of capital. Using the news-based index developed by Baker et al. (2016) for twenty-one countries, we find that the strength of the negative relation between investment and the cost of capital decreases during times of high economic policy uncertainty. An increase in policy uncertainty reduces the sensitivity of investment to the cost of capital most for firms operating in industries that depend strongly on government subsidies and government consumption as well as in countries with high state ownership. Consistent with the price informativeness channel, we find that an increase in policy uncertainty reduces the investment-cost of capital sensitivity for firms from more opaque countries, firms with low analyst coverage, firms with no credit rating, and small firms. We conclude that economic policy uncertainty distorts the fundamental relation between investment and the cost of capital.
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Cites
Measuring Economic Policy Uncertainty*
Baker, S. R., Bloom, N., & Davis, S. J. (2016) · The Quarterly Journal of Economics · doi:10.1093/qje/qjw024 · Cited by 12,458
Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches
Petersen, M. A. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhn053 · Cited by 10,746
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Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?
Kaplan, S. N., & Zingales, L. (1997) · The Quarterly Journal of Economics · doi:10.1162/003355397555163 · Cited by 6,770
The theory and practice of corporate finance: evidence from the field
Graham, J. R., & Harvey, C. R. (2001) · Journal of Financial Economics · doi:10.1016/s0304-405x(01)00044-7 · Cited by 5,939
The Impact of Uncertainty Shocks
(2009) · Econometrica · doi:10.3982/ecta6248 · Cited by 5,834
A Simple Model of Capital Market Equilibrium with Incomplete Information
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Financing Constraints and Corporate Investment
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Financing Constraints and Corporate Investment
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Metadata
- Authors
- Drobetz, W., El Ghoul, S., Guedhami, O., & Janzen, M.
- Venue
- Journal of Financial Stability
- Publisher
- Elsevier BV
- Published
- 2018-12
- Volume
- 39
- Pages
- 28-45
- ISSN
- 1572-3089 (ISSN-L)
- OpenAlex
- W3123778558
- Cited by
- 341
- References
- 102
- FWCI
- 46.10
- Type
- journal article
- Language
- en
- Open access
- green
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- Drobetz, W., El Ghoul, S., Guedhami, O., & Janzen, M. (2018). Policy uncertainty, investment, and the cost of capital. Journal of Financial Stability. https://doi.org/10.1016/j.jfs.2018.08.005
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