The Impact Of Economic Policy Uncertainty On Corporate Investment

After the financial crisis,various measures were adopted by lots of countries to avoid further recession.In recent years,China's economy steps into the "new normal" phase,in which we are facing serious pressure of economic downturn and a structural transformation of the economy is urgently needed.In order to maintain a sustained,stable and coordinated development,Chinese government has tightened macro-control and introduced a series of fiscal and monetary policies,which increased policy fluctuation.For the value creating process of companies,investment,which is quite sensitive to macroeconomic changes,is the most important activity.While the changes of macro-economic has significant impact on companies' investment activities.once the macro-economy changed,the investment activities of companies would be influenced greatly.And thus it is quite important to study the impact of policy uncertainty on enterprise investment.Meanwhile,Economic theory holds that the asymmetry of information leads to the principal-agent problem.The corporate financing structure,especially the debt maturity structure,can change the investment decision of the enterprise.Choosing different debt maturity structure may result in different investment behaviors of the enterprise.This paper first expounds the general theory that economic policy uncertainty affects corporate investment expenditure,including real option theory and financing premium theory.Then it introduces the related theories that corporate debt maturity structure affects corporate investment expenditure,covering principal-agent theory and free cash flow hypothesis.Then combined with the reality,the transmission mechanism of these two relationships is analyzed in detail.Subsequently,this paper adopts a fixed-effects model,using the panel data of China's manufacturing listed companies in 2002-2017 and the economic policy uncertainty index constructed by Baker et al.(2013),combining theory with empirical evidence to conduct more rigorous research.The results show that: First,the uncertainty of economic policy has an inhibitory effect on corporate investment.When the economic policy uncertainty index rises,due to the asymmetry of information,corporate financing becomes more difficult,financing costs rise,and enterprises are forced to reduce investment spending.Secondly,the short-term debt ratio of enterprises is positively correlated with the uncertainty of economic policies.When the economic policy uncertainty index rises,the business risks increase and the profitability declines.For banks,in this case,the default risk of long-term debt is higher than short-term,while they are more inclined to provide short-term loans to enterprises.Combined with the median effect test method proposed by Wen Zhonglin(2004),it is tested whether the debt maturity structure has a mediating effect in the process of economic policy uncertainty affecting enterprise investment.The results show that the increase of economic policy uncertainty index will inhibit corporate investment.At the same time,the uncertainty of economic policy has risen,which has led to the short-term structure of corporate debt maturity,which further inhibits corporate investment.Finally,the policy implications of this paper are: On one hand,the government should scientifically and prudently formulate economic policies,promote financial market reforms,and broaden corporate financing channels;on the other hand,enterprises should strengthen risk resilience,improve market competitiveness,and optimize debt maturity structure.