Geopolitical Uncertainty and Corporate Investment

We find that shocks to aggregate geopolitical uncertainty are associated with an average decline in firm-level capital investment. The decline in investments increases in the degree of external financial constraints faced by firms, with the effect being stronger for more irreversible investments. A surprising and hitherto unexplored result is the role of firm-level liquidity as a necessary catalyst in linking investment plan revisions and uncertainty – without sufficient cash reserves, the negative relation between investments and uncertainty becomes insignificant