Economic Policy Uncertainty and Capital Structure Choice: Evidence from China

By Guangli Zhang, Jianlei Han, Zheyao Pan, Haozhi Huang. 2015

236 citations recorded by the source corpus.

This paper studies how economic policy uncertainty affects corporate capital structure for Chinese listed firms from 2003 to 2013. We show that when the degree of economic policy uncertainty increases, firms tend to lower their leverage ratios. However, firms that are from regions with lower degree of marketization, are state-owned or have prior bank-firm relationship mitigate the negative effect of policy uncertainty. Moreover, we provide consistent evidence that this negative effect sources from the deterioration of external financing environment. We also find that firms adjust their financing structure by using more trade credit when the economic policy uncertainty increases. Our results are robust to sample selection criteria, data frequency, model specifications and endogenetiy.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/5c4cb3cd4aebd061e47473e682b4b8932cc9a0ae

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. Yinjie Shen
2. Thanh N. Ngo
3. S. Jory
4. Hieu V. Phan
5. Badar Nadeem Ashraf
6. Hinh D. Khieu
7. Çiğdem Vural-Yavaş

In Economics and Econometrics

1. Thanh N. Ngo
2. I. Tsai
3. Yinjie Shen
4. S. Jory
5. Hieu V. Phan
6. Badar Nadeem Ashraf
7. Hinh D. Khieu
8. Boqiang Lin

Citations in the corpus

• The influence of economic policy uncertainty on corporate trade credit and firm value (2020, background): “Zhang et al. (2015) document that firm leverage ratios are negatively related to EPU due to a “supply effect” since the external financing environment becomes more restrictive during times of high”
• The source of global stock market risk: A viewpoint of economic policy uncertainty (2017, background): “Thus far, numerous studies have employed various indicators of EPU to explore the effect of EPU on crucial topics such as corporate governance (Zhang et al., 2015), investment behavior (Wang et al., 2014), economic development (Scheffel, 2015), monetary policy effects (Aastveit et al., 2013),…”
• Economic policy uncertainty and banks’ loan pricing (2019, background): “2019) and the leverage ratios of corporate firms tend to decrease due to tight financing environment (Zhang et al. 2015).”