The Economic Policy Uncertainty and the Australian Firm Investment

Abstract

This paper examines the impact of economic policy uncertainty (EPU) on the Australian firm investment activity. We find a significant positive relationship between the EPU and the firm investment over 2002 to 2017 period. Our main results remain unchanged after several endogeneity tests. Further analysis suggests that this relationship becomes pronounced for firms if their headquarters located in small states, firms with more tangible assets, higher operating cash flow, cash holdings, higher profits and leverage, but firms with fewer dividend payouts. Our paper sheds light on the unique attributes of the impact of EPU on the Australian firm investment activity and provides important policy and managerial implications.