Abstract
This study examines the association between various uncertainties and corporate investment and further investigates this association between state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs). Moreover, this study analyzes the indirect effects of uncertainty on corporate investment through cash flow. The current research uses an unbalanced panel data of Chinese nonfinancial listed firms for the period 1999–2016. To control endogeneity issues, this study applies a robust two-step system generalized method of moments (GMM) technique to estimate the model. Empirical findings indicate that market-based and firm-specific uncertainties have positive effects, whereas economic policy and CAPM-based uncertainties have negative effects on corporate investment. Furthermore, results indicate that the effects of market-based, CAPM-based, and firm-specific uncertainties (economic policy uncertainty) were less (more) prominent for SOEs. Additional analyses show that cash flow stimulates the effect of firm-specific uncertainty on SOEs’ investment, whereas it weakens the influence of CAPM-based uncertainty (economic policy uncertainty) on investment of non-SOEs (SOEs). Moreover, cash flow attenuates the market uncertainty effect on investment.
Highlights
Researchers have exerted substantial effort in attempting to understand the nature of the uncertainty–investment relationship at the firm and market levels
Our findings indicate that the uncertainty–investment relationship varies for firms of different nature
We explore that cash flow is one of the attributes that can moderate the association between investment and uncertainty
Summary
Researchers have exerted substantial effort in attempting to understand the nature of the uncertainty–investment relationship at the firm and market levels. As a transition economy, China is moving from a command-based to a market-based economy, and the economy is under a high policy uncertainty (Wang, Chen, & Huang, 2014) It will influence firms’ costs, sales, and earnings. Unlike previous studies (Baum et al, 2008, 2010; Dibiasi et al, 2018; Wang et al, 2014; Xu et al, 2010), we investigate the effects of economic policy uncertainty, along with CAPM, market, and firm-related uncertainties on corporate investment. This study examines the differential impact of different forms of uncertainties on the investments of SOEs and non-SOEs. Our findings indicate that the uncertainty–investment relationship varies for firms of different nature.
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
