Foreign economic policy uncertainties and corporate investments: Insights from Hong Kong

Abstract

Our study reveals that corporate investment decisions in Hong Kong, a small open economy with a significant presence of multinational corporations, are largely and negatively influenced by economic policy uncertainties from foreign countries (foreign EPU). Furthermore, the adverse impact of foreign EPU on corporate investments is more pronounced in firms with extensive international operations. Our findings highlight the relevance of global uncertainties, implying that economic policy shocks in other parts of the world can have far-reaching effects on capital allocation decisions in the home country, and therefore, are consequential from the perspectives of both corporate managers and policymakers.