Economic policy uncertainty and corporate investment: evidence from China

We investigate the impact of economic policy uncertainty (EPU) on corporate investment. Employing the EPU index at the province level in China and firm level data from the Annual Census of Industrial Enterprises, our analysis reveals that the heightened EPU significantly reduces corporate investment. Specifically, empirical estimates show that 1% increase in the EPU index is associated with 0.051% decrease in corporate investment. Furthermore, the adverse repercussions of EPU on corporate investment are significantly more pronounced for the smaller, younger and less efficient firms as well as those with higher financial vulnerability and less credit loans.