Impact of economic policy uncertainty on corporate investment efficiency: Moderating roles of financing constraints and financialisation

Abstract

This study delves into the intricate dynamics between economic policy uncertainty and corporate investment efficiency by examining a comprehensive dataset of China's A-share listed firms over a decade, spanning from 2012 to 2022. The research validates the moderating influence of financing constraints within this intricate relationship, revealing that as economic policy uncertainty escalates, it acts as a constraint on inefficient investment practices among enterprises, thereby fostering improved investment efficiency. Notably, the study highlights that the moderating impact of financing constraints is particularly pronounced among companies that exhibit overinvestment tendencies. This finding suggests that economic policy uncertainty can serve as a corrective mechanism, guiding firms towards more prudent investment decisions. Moreover, the research identifies enterprise financialisation as a pivotal factor in the relationship between economic uncertainty and investment efficiency. It acts as a mediator, bridging the gap between these two variables and providing deeper insights into the complex interplay that governs corporate investment behavior in the face of economic uncertainty. Overall, this study offers valuable insights into the factors that influence corporate investment efficiency and how economic policy uncertainty can shape these dynamics.