Policy uncertainty and corporate credit spreads

By Mahsa S. Kaviani, Lawrence Kryzanowski, H. Maleki, Pavel Savor. Journal of Financial Economics, 2020

255 citations recorded by the source corpus.

Abstract We find a significant positive relation between changes in policy uncertainty and changes in credit spreads. Macroeconomic conditions, including general uncertainty, do not explain this result, which also holds when we use instrumental variables to address endogeneity issues. The impact of policy uncertainty is greater for firms that operate in regulation-intensive industries, face high tax rates, or are dependent on government spending. It is also stronger for firms that engage in political activities or rely on external financing. We conclude that policy uncertainty has a significant effect on firms’ borrowing costs, with exposure to government policies representing an important channel.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/4ba48d0ff4476b3b8e92b0512361b2074789fb85

Citations in the corpus

• Climate Regulatory Risks and Corporate Bonds (2020, unknown): “In addition, Kaviani, Kryzanowski, Maleki, and Savor (2020) provide evidence of a strong relation between movements in the Baker et al. (2015) economic policy uncertainty index and corporate credit spreads.”
• The influence of economic policy uncertainty on corporate trade credit and firm value (2020, unknown): “Wang et al. (2018) and Kaviani et al. (2017) document that EPU is positively related to credit default swap (CDS) spreads.”