Corporate responses to economic policy uncertainty around the world

Abstract

This paper investigates how economic policy uncertainty (EPU) shapes firm-level corporate financial decisions across 18 countries. Amid rising global policy volatility, we examine whether and how uncertainty affects key corporate choices: investments, share issuance, payouts, and cash holdings, and whether country- and firm-level factors moderate these effects. Using firm-level data and established measures of EPU, we document several consistent patterns. Higher policy uncertainty is associated with reduced corporate investment, lower propensity to issue shares, and increased cash holdings (El Ghoul et al., 2023). Results for payout policies are more mixed across countries. We further find that these effects are moderated by institutional context: firms in countries with French legal origin (typically weaker investor protections) and higher levels of economic development show greater sensitivity in their investment decisions. Additionally, listing abroad via an American Depositary Receipt helps moderate the impact of policy uncertainty on share issuance. Overall, our findings highlight how policy uncertainty influences corporate behavior differently depending on institutional strength and firm internationalization choices. The results have important implications for understanding corporate resilience in uncertain policy environments and for policymakers aiming to foster stable investment climates.