The Research On The Impact Of Economic Policy Uncertainty On The Bankruptcy Risk Of Real Estate Enterprises In China

As one of the most important pillars of China’s economy,the real estate industry has contributed to promoting economic development and meeting housing demand,but with the outbreak of debt crises of head real estate enterprises such as Evergrande,which has brought about shocks to market confidence and industry fundamentals,the swelling overall debt and high leverage has been an important element in China’s efforts to prevent systemic risks in recent years,especially in the real estate industry.A series of austerity policies such as the "three red lines" and centralised land supply have made China’s real estate market face more uncertainty.The report of the 20 th Party Congress emphasised that China must guard the bottom line of no systemic risk and improve the regulatory system for various financial activities in accordance with the law.Against the backdrop of frequent fluctuations in external economic policies,it is important and urgent to accurately assess the insolvency risk of real estate companies and to provide early warnings to reveal the mechanisms affecting the level of insolvency risk of real estate companies.Most academic research on the factors influencing the insolvency risk of real estate companies has focused on the financial performance and corporate governance behaviour of companies,but in the process of production and business activities,as a product of the environment,companies are bound to be subject to the role and constraints of the macroeconomic environment and institutional context.As economic policies are subject to frequent fluctuations and uncertainties,will the level of insolvency risk of real estate enterprises be affected by the increased uncertainty of economic policies? What are the mechanisms involved? How will real estate enterprises of different ownership nature and size be affected differently? This paper uses a total of 166 listed real estate enterprises in Shanghai and Shenzhen A-shares and H-shares domiciled in the Mainland and listed in Hong Kong from 2000 to 2021 as the research sample,constructs real estate enterprises’ bankruptcy risk variables by referring to the Altman-Z value method,measures the economic policy uncertainty during the sample period by using the China Economic Policy Uncertainty Index constructed by Baker’s team,and applies a fixed-effects model An empirical investigation was conducted to examine the impact of China’s real estate enterprises’ bankruptcy risk on economic policy fluctuations in the context of a transition economy.The findings indicate that(1)the bankruptcy risk of real estate enterprises in China rises significantly due to increased economic policy uncertainty,i.e.there is a facilitative effect of economic policy volatility.This finding is also robust after addressing the endogeneity issue.(2)The external financing constraints to which real estate firms are subject as well as their own operating uncertainty mediate the facilitation effect,which is exacerbated by higher levels of external financing constraints and internal operating uncertainty.(3)From the perspective of the nature of ownership,the bankruptcy risk of private real estate firms is more strongly facilitated by economic policy uncertainty than that of state-owned firms.Under the firm size perspective,the bankruptcy risk of large and small real estate firms is facilitated by economic policy uncertainty,while it is dampened for medium-sized real estate firms.Based on the above findings,from the perspective of institutional environment,it is pointed out that government departments should improve the level of information disclosure before and after policy release to create a policy environment with stable expectations;from the perspective of financial development,it is pointed out that financial supervision should be strengthened and the orderly and benign development of capital market should be promoted;from the perspective of strategic decision-making of real estate enterprises,it is suggested that enterprises should prudently formulate top-level strategies to cope with uncertainty.