Capital investments and firm characteristics: The moderating role of economic policy uncertainty in the hospitality sector

Abstract

The study explores the association between capital investments (CI), Economic Policy Uncertainty (EPU) and firm characteristics for 420 hospitality firms in India. Utilising the dynamic panel data approach, it addresses two main questions: How are current and past investments in CI influenced by current and past global and domestic EPU after controlling for different firm characteristics? Secondly, it considers the moderating effect of EPU and liquidity on CI in sampled firms. The findings of the study demonstrate that past domestic EPU, liquidity, profitability, sales growth and leverage positively impact CI. Whereas current global EPU, current domestic EPU, past global EPU, age and size negatively affect CI. For moderating effect of EPU and liquidity, it was noted that negative impact of EPU on CI was less pronounced for firms displaying greater liquidity. Overall, the study finds evidence of global EPU being more persistent and having a long-term negative effect on CI. The findings would be of significant use to policymakers and the hospitality industry. The policymakers may focus on improving liquidity during policy uncertainty to boost CI.