Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Does economic and policy uncertainty impact corporate policies? Evidence from India

Does economic and policy uncertainty impact corporate policies? Evidence from India This study aims to examine the role of economic political uncertainty (EPU) on various corporate policies, namely, cash reserves, investment, capital structure and operating activities of Indian listed firms.Design/methodology/approachTo assess the influence of policy-related uncertainties, the author uses the India-specific EPU news-based index constructed by Baker et al. (2016) as a proxy for policy uncertainties. This study uses data from listed Indian firms spanning the period 2003 to 2019. The author uses panel regression models with firm-fixed effects to analyze the impact of EPU on corporate policies, including cash reserves, leverage and CAPEX, while considering key control variables.FindingsIn response to heightened EPU, firms tend to increase their cash reserves, curtail their investment activities and favour secured financing options. Notably, this study aligns with the “real options” framework, demonstrating that firms with substantial investment irreversibility significantly reduce their capital expenditures during periods of elevated EPU. Additionally, the results reveal that rising EPU corresponds to heightened borrowing costs and increased operating expenses for firms.Originality/valueIn contrast to prior research that predominantly investigated the impact of EPU on the decisions of listed firms in developed markets, this study delves into the role of EPU on corporate policies among listed firms in India. This focus is particularly relevant, given the significant policy changes that have transpired in the Indian business landscape in recent years. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Indian Growth and Development Review Emerald Publishing

Does economic and policy uncertainty impact corporate policies? Evidence from India

Ramesh, Vishnu K.
Indian Growth and Development Review , Volume 17 (1): 20 – Mar 29, 2024
Download PDF
20 pages

Loading next page...
 
/lp/emerald-publishing/does-economic-and-policy-uncertainty-impact-corporate-policies-MwdqKVL4y5

References (56)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1753-8254
eISSN
1753-8254
DOI
10.1108/igdr-09-2022-0107
Publisher site
See Article on Publisher Site

Abstract

This study aims to examine the role of economic political uncertainty (EPU) on various corporate policies, namely, cash reserves, investment, capital structure and operating activities of Indian listed firms.Design/methodology/approachTo assess the influence of policy-related uncertainties, the author uses the India-specific EPU news-based index constructed by Baker et al. (2016) as a proxy for policy uncertainties. This study uses data from listed Indian firms spanning the period 2003 to 2019. The author uses panel regression models with firm-fixed effects to analyze the impact of EPU on corporate policies, including cash reserves, leverage and CAPEX, while considering key control variables.FindingsIn response to heightened EPU, firms tend to increase their cash reserves, curtail their investment activities and favour secured financing options. Notably, this study aligns with the “real options” framework, demonstrating that firms with substantial investment irreversibility significantly reduce their capital expenditures during periods of elevated EPU. Additionally, the results reveal that rising EPU corresponds to heightened borrowing costs and increased operating expenses for firms.Originality/valueIn contrast to prior research that predominantly investigated the impact of EPU on the decisions of listed firms in developed markets, this study delves into the role of EPU on corporate policies among listed firms in India. This focus is particularly relevant, given the significant policy changes that have transpired in the Indian business landscape in recent years.

Journal

Indian Growth and Development Review – Emerald Publishing

Published: Mar 29, 2024

Keywords: EPU; Uncertainty; Emerging markets; Investment decisions; Financial decisions

There are no references for this article.