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Bulletin of Monetary Economics and Banking

Document Type

Article

Abstract

We investigate the endogenous relationship between firm-level investments and macro-level uncertainty for U.S publicly listed firms from 1996 Q1 to 2019 Q4. Based on the Vector AutoRegressive analysis, we learn that underinvestment tends to increase news-based Economic Policy Uncertainty (EPU); overinvestment increases macroeconomic uncertainty; and both under- and over-investment lead to increasing financial uncertainty. Furthermore, the information flow explanation is closely linked to a positive relationship between underinvestment and EPU. Meanwhile, the positive relationship between overinvestment and macroeconomic uncertainty is related to the excessive growth speculation explanation. The small (large) firm subsample analysis also reiterates the explanation of the information flow (excessive growth speculation).

First Page

265

Last Page

298

Creative Commons License

Creative Commons Attribution-NonCommercial 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

Indonesia

Affiliation

Universitas Pelita Harapan

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