Economic policy uncertainty and corporate risk-taking: International evidence

Abstract

Corporate risk-taking behavior has important implications for firm growth, performance and survival. The extant literature shows that corporate risk-taking is determined by many environmental factors. Recently, economic policy uncertainty has received increasing academic attention, but there has been no research on the relationship between economic policy uncertainty and risk-taking across countries. Using a sample of 151,483 observations across 18 countries over the period from 2005 to 2016, we find that economic policy uncertainty is negatively related to corporate risk-taking. Moreover, we provide additional analysis to examine whether national culture affects the strength of this effect. Our research findings show that uncertainty avoidance culture and individualistic culture make the negative effect of economic policy uncertainty on corporate risk-taking behavior stronger and weaker, respectively.