Research On Economic Policy Uncertainty And Corporate Risk-taking

The corporate risk-taking reflects that enterprises actively choose those investment opportunities with high risk but positive expected net present value(NPV)in investment decision-making.Although taking excessive risks may lead to bankruptcy,few enterprises can succeed without taking risks.From the enterprise level,choosing high-risk projects is the result of managers'full recognition and utilization of investment opportunities,which can significantly improve the efficiency of capital allocation and enterprise value;from the social level,high-risk projects can bring high returns,promote technological progress,accelerate social capital accumulation,and maintain social productivity at a higher level.Therefore,it is of great significance to properly improve the level of risk-taking of enterprises in order to enhance the value of enterprises and promote social and economic growth in China.In the report of the Nineteenth National Congress of the Communist Party of China in2017,it was pointed out that China's economy has changed from a stage of high-speed growth to a stage of high-quality development.On the micro level,high-quality development should be based on the improvement of enterprise's production factors,productivity and total factor efficiency,not on the expansion of factor input.The essence of high-quality development lies in the vitality,innovation and competitiveness of the economy,which necessarily requires enterprises to undertake.To some extent,we should increase R&D investment,actively innovate,improve the efficiency of resource allocation,and select some high-risk projects.Therefore,in the transition period of China,it has been realized that appropriate risk-taking can play a positive role in promoting the organization and even the whole society.However,the choice of high-risk projects can not be separated from the prediction of the macroeconomic situation,and the uncertainty of external economic policies will directly affect the decision-making behavior of micro-enterprises.Over the past five years,Chinese economic policy uncertainty index has continued to rise,climbing to 360 in 2017,which is more than three times in the financial crisis period of 2008 and 2009.Major events such as deepening reform in an all-round way,structural reform on the supply side,house price control,the judgment of the new economic normal and the proposition of five new development concepts have all increased the uncertainty of the external environment.In addition,with the integration of the global economy,Sino-US trade frictions continue to heat up,and political risk events in any place are likely to cause significant fluctuations in the economies of other countries.Make the external environment of the enterprise more changeable and unpredictable.With the increasing uncertainty of economic policy,the investment environment of enterprises will undergo profound changes,which will directly weaken the ability of management to accurately predict future investment returns.Therefore,the increase of uncertainty of economic policy may lead to wrong decision-making or greater losses than wrong decision-making(Gulen and Ion,2012).In the current environment of high economic policy uncertainty,it is of great practical significance to explore the impact of corporate risk-taking,and it is also an important topic worthy of attention in macro-micro research.This paper uses the EPU index to measure the uncertainty of economic policy,which is constructed by three professors Baker,Bloom and Davis of Stanford University and their team based on news media and web search information.It is very important that this measurement method can solve the discontinuity of single policy test,reflect the degree of uncertainty of a country's overall economic policy,and overcome the shortcomings of quantitative uncertainty of economic policy.Economic policy is a very complex aggregation,including not only economic uncertainty,but also political uncertainty.How to summarize and reflect this uncertainty is a technical problem,and it is also the unique feature of EPU index,which lays a technical foundation for empirical research in this paper.Based on the classical CAPM model and Lubos and Pietro's(2011)yield model,this paper introduces corporate risk-taking and economic uncertainties,and combines NPV theory,expected utility theory and real option theory to analyze in depth the mechanism of how economic policy uncertainty affects enterprise risk-taking.In addition,when examining the impact of economic policy uncertainty on enterprise risk-taking level,considering that the current risk-taking level will be affected by the level of risk-taking in the previous period and reducing endogenous problems,this paper uses dynamic panel data estimation model with enterprise risk-taking lag term.Taking all A-share non-financial listed companies listed on the Shanghai and Shenzhen Stock Exchange from 2005 to 2017as samples,this paper empirically examines the relationship between them,Furthermore,selects macro-factor marketization process,mid-factor corporate strategy and micro-factor managerial characteristics to examine the moderating effect of economic policy uncertainty on enterprise risk-taking and finds that:Firstly,the increasing uncertainty of economic policy will restrain the risk-taking of enterprises and reduce the income growth of enterprises.Enterprises choose the level of corporate risk-taking in the current period according to the expected distribution of macroeconomic policy uncertainty.When the uncertainty of enterprise's expected economic policy increases,the estimation of~?2g2g t~2+1becomes larger,and the increase of~?2g2g t~2+1increases the risk of enterprise's future expected return rate.In order to reduce the occurrence of future losses,enterprises will reduce corporate risk-taking as much as possible to make up for the future failure.The loss caused by certainty.This conclusion also validates the assumption that investment is irreversible in real option theory.Increasing environmental uncertainty weakens the willingness of enterprises to invest in risky projects,preferring to"wait"and"see"until the information becomes clearer.Secondly,compared with non-state-owned enterprises,the risk-taking of state-owned enterprises is more sensitive to economic policy uncertainty.In the period of high uncertainty of economic policy,state-owned enterprises tend to make sound investment decisions,and their operating efficiency is worse,because of government intervention and principal-agent problems.Under the strong government intervention,the state-owned enterprises assume more social functions.In addition,under the current administrative system of China,the managers of state-owned enterprises,based on the implicit incentive of"political advancement",will not risk increasing risky project investment in the period of high uncertainty with the belief of"no merit but no fault".On the agency issue,the agency cost of state-owned enterprises is higher than that non-state-owned.Uncertainty of economic policy greatly increases the asymmetry of information.State-owned enterprises are more willing to make project decisions according to national policies in order to maximize personal interests,tend to avoid risks and reduce risk-taking level.These problems make state-owned enterprises more willing to adopt prudent and conservative policies.Investment strategy,reject those riskier investment projects.Thirdly,the lower the degree of marketization and the less developed the economy,the greater the negative impact of uncertainty on enterprise risk-taking level.The process of high marketization can quickly digest the uncertainty of economic policy and promote enterprise risk-taking.After the regress of state-owned group and non-state-owned group,the above situation still exists,which shows that whether state-owned enterprises or non-state-owned enterprises,the process of marketization can well alleviate the negative impact of uncertainty on enterprise risk-taking.Secondly,the more radical strategy deviates from the industry mean,the less negative impact of economic policy uncertainty on corporate risk-taking.However,this weakening effect is not significant in state-owned enterprises.This shows that radical strategic organizations are more likely to know opportunities from uncertainties,fully identify and grasp the favorable conditions in order to gain greater competitive advantage.However,the"steady"first characteristic of state-owned enterprises is that when uncertainty increases,they tend to be more conservative and have a lower level of risk-taking.The positive moderating effect of corporate strategy fully proves Knight's(1921)view that"uncertainty is the only source of corporate profits,if the future can be predicted,profits will disappear".Fourthly,from the three characteristics of managerial power,managerial overconfidence and managerial competence,we find that economic policy uncertainty has different effects on human factors in corporate risk-taking.There is no moderating effect of managerial power on the negative impact of economic policy uncertainty on corporate risk-taking.Managerial overconfidence has a non-linear moderating role in the relationship between them.This paper makes further analysis and calculation,and finds that when EPU is less than 208,overconfident managers will promote the level of risk-taking,show greater risk preference,and prefer to choose venture investment projects with positive net cash flow.Once EPU exceeds 208,they will overdo it again.Self-confident managers still invest rationally and don't take risks blindly.Moreover,compared with non-state-owned enterprises,managerial overconfidence is more likely to be constrained by economic policy uncertainty.Manager's ability plays a positive role in promoting the relationship between them.The stronger the managerial ability,the higher corporate risk-taking.However,with the increasing of EPU,the marginal utility of manager's ability will decrease.And the managerial ability of private enterprises has shown a stronger role in promoting.Based on the analysis of the regulatory effect of managerial characteristics,we find that entrepreneurship really shows another important factor of production after land,capital and labor.The main innovations of this paper are as follows:Firstly,it enriches the theoretical research of enterprise risk-taking behavior.Traditionally,the analysis of the influencing factors of risk-taking mainly focuses on micro-factors,such as company-level characteristics,to study the specific impact on risk-taking,while the literature from macro-perspective is relatively few.In this paper,from the perspective of macro-economic policy uncertainty,combined with the current situation of increasing economic policy uncertainty in China in recent years,the general equilibrium model of risk-taking is constructed,and its impact on enterprise risk-taking is studied in depth.This paper expands the research perspective from internal factors to external factors,from micro factors to macro factors,thus promoting and deepening the existing theoretical research on enterprise risk-taking behavior.Secondly,a general equilibrium model based on risk adjustment is constructed.Classical CAPM model divides risk into systemic risk and non-systemic risk.On the basis of this classification,this paper draws lessons from Lubos and Pietro's(2011)yield model,introduces uncertain factors of economic policy in systemic risk,enterprise risk-taking factors in non-systemic risk,and maintains the same assumptions as CAPM model,investors'rational assumptions and complete market efficiency hypothesis,the general equilibrium model is constructed,which increases the logic and rigor of the analysis in this paper.Thirdly,the threshold of managerial characteristics is explored.Most literatures simply and roughly default the influence of regulatory factors on the object of study as a linear relationship,but in most cases,it is not necessarily,more non-linear relationship.This paper explores the non-linear impact of managerial characteristics on enterprise risk-taking.When the uncertainty of economic policy exceeds a certain value,the regulatory role of managerial characteristics will become opposite,which makes the theme of this study more in line with the actual situation.The conclusion of threshold has a good reference value for China to formulate more scientific policies,and adds a quantitative explanation basis.