Firm-Level Economic Policy Uncertainty, Firms’ Investment and Financial Assets

Abstract

We use text mining tools to extract a measure of economic policy uncertainty perceived by individual Chinese listed firms from their annual report texts. We present this measure with some visualization techniques and it varies over time and across sectors in accordance with our intuitions. The dispersion of the perceived economic policy uncertainty measure rises significantly when the aggregate uncertainty goes high. The variation of this measure comes mainly from sector levels. Firms perceived economic policy uncertainties decrease corporate investment expenditures and increase holding financial assets. It is suggested that Chinese policy makers should increase process transparency when formulating economic policies, improve communication with firms and manage their expectations more effectively.