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Economic Uncertainty and Corporate Investment: An Exploratory Analysis
Subject area: Management and Commerce · Area of research: Economics
Abstract
Economic uncertainty can influence how firms make investment decisions, particularly when businesses face uncertain future economic conditions. This study will analyse the relationship between economic uncertainty and corporate investment decisions. Using firm-level financial data and macroeconomic uncertainty indicators for the period of 5 years, the study will look into whether higher uncertainty reduces the corporate investment. Corporate investment will be evaluated using capital expenditure relative to total assets, while economic uncertainty captured using the Economic Policy Uncertainty Index and the VIX. Panel data regression models with firm and year fixed effects will be utilized, controlling for firm size, profitability, leverage, cash holdings, and sales growth. The study aims to determine whether financially constrained firms are more sensitive to uncertainty than firms with stronger financial positions. The research aims to provide empirical evidence on how uncertainty affects corporate investment behavior and contribute to a better understanding of investment decisions under uncertain economic conditions.
References
[1] Baker SR, Bloom N, Davis SJ (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/qjw024
[2] Gulen H, Ion M (2016). Policy uncertainty and corporate investment. The Review of Financial Studies, 29(3), 523–564. https://doi.org/10.1093/rfs/hhv050
[3] Julio B, Yook Y (2012). Political uncertainty and corporate investment cycles. The Journal of Finance, 67(1), 45–83. https://doi.org/10.1111/j.1540-6261.2011.01707.x
[4] Kang W, Lee K, Ratti RA (2014). Economic policy uncertainty and firm-level investment. Journal of Macroeconomics, 39, 42–53. https://doi.org/10.1016/j.jmacro.2013.10.006
[5] Wang YZ, Chen CR, Huang YS (2014). Economic policy uncertainty and corporate investment: Evidence from China. Pacific-Basin Finance Journal, 26, 227–243. https://doi.org/10.1016/j.pacfin.2013.12.008
How to cite this paper
@article{1723856,
author = {Ankit Kumar},
title = {Economic Uncertainty and Corporate Investment: An Exploratory Analysis},
journal = {Iconic Research And Engineering Journals},
year = {2026},
volume = {10},
number = {4},
pages = {1194-1199},
issn = {2456-8880},
url = {https://www.irejournals.com/formatedpaper/1723856.pdf},
abstract = {Economic uncertainty can influence how firms make investment decisions, particularly when businesses face uncertain future economic conditions. This study will analyse the relationship between economic uncertainty and corporate investment decisions. Using firm-level financial data and macroeconomic uncertainty indicators for the period of 5 years, the study will look into whether higher uncertainty reduces the corporate investment. Corporate investment will be evaluated using capital expenditure relative to total assets, while economic uncertainty captured using the Economic Policy Uncertainty Index and the VIX. Panel data regression models with firm and year fixed effects will be utilized, controlling for firm size, profitability, leverage, cash holdings, and sales growth. The study aims to determine whether financially constrained firms are more sensitive to uncertainty than firms with stronger financial positions. The research aims to provide empirical evidence on how uncertainty affects corporate investment behavior and contribute to a better understanding of investment decisions under uncertain economic conditions.},
month = {October},
}