Using a news-based index of aggregate policy uncertainty in the US economy, we document a strong negative relation between policy uncertainty and corporate risk-taking. We show that high levels of policy uncertainty are associated with significantly lower future stock return volatility at the...

Risk is a vital concept to grasp when investing in a firm or project. It is also a key ingredient required to evaluate the cost of capital and perform a valuation. An organization’s capital structure, specifically the amount of leverage and debt financing employed, must be accounted for to...

We explore a long standing prediction in the international business literature that managers' subjective perceptions of political risk – not just the level of risk – are important for how firms manage political risk. The importance attributed to political risk by corporate executives has...

Nowadays, non-financial corporations invest heavily in financial assets, questioning the traditional boundaries of non-financial firms. We investigate how economic policy uncertainty affects firms' holding of non-currency financial assets and portfolios of such assets in China. We find that...

In this paper, we study how legal uncertainty affects economic activity. We develop a parsimonious model with different types of legal uncertainty that reduce economic activity and that can be classified as idiosyncratic (i.e., diversifiable) or systematic (i.e., nondiversifiable). We test the...

We document a new "policy sensitivity" channel of corporate political contributions. Firms that are highly sensitive to government policy uncertainty have a stronger incentive to contribute to political candidates, and these firms' risk-taking and performance should be more affected by the gain...

Using the Baker, Bloom, and Davis (2013) news-based measure to capture economic policy uncertainty (EPU) in the United States, we find that EPU positively forecasts log excess market returns. A one-standard deviation increase in EPU is associated with a 1.5% increase in forecasted 3-month...

The aim of this paper is to investigate the effect of policy uncertainty on firms' investment decisions. We focus on Spain for the period 1998-2014. To measure policy-related uncertainty, we use a new macroeconomic indicator constructed for this country. We find strong evidence that policy...

This paper investigates the mechanism of transmitting economic policy uncertainty (EPU) shocks to capital structure. We adopt a novel approach that bridges the asset pricing implications of EPU and the debt-financing decisions of Chinese firms by introducing a variable “policy-risk-induced...

We examine the effects of government policy uncertainty on cross-border capital flows. FDI flows from US companies to foreign affiliates drop significantly during the period just before an election. The election effect for FDI is larger than election cycles in domestic investment. The electoral...