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Corporate risk-taking in developed countries: The influence of economic policy uncertainty and macroeconomic conditions

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Corporate risk-taking in developed countries The influence of economic policy uncertainty and macroeconomic conditions.pdf (634.0Kb)
Date
2020
Author
Vural-Yavaş, Çiğdem
Abstract
Using 74,974 firm-year observations covering 15 developed European countries over the time period 1999-2017, this paper explores the effect of economic policy uncertainty on corporate risk-taking. The findings indicate that firms become more risk averse with an economic policy uncertainty shock. The relationship is valid under idiosyncratic and earnings volatility risk measures, regardless of whether the macroeconomic condition is favorable or not. Moreover, the competition level in the industry is a crucial factor moderating the effect of economic policy uncertainty on corporate risk-taking. Firms operating in concentrated industries decrease their risk-taking. Conversely, firms operating in highly competitive industries do not change their risk-taking with an economic policy uncertainty shock, no matter what the market condition is. However, financial constraint affects the risk aversion of firms. In fact, when the macroeconomic outlook is unfavorable, financially constrained firms diminish risk-taking under all competition levels. On the other hand, the favorable stock market conditions encourage managers of financially constrained firms and reduce the impact of economic policy uncertainty on corporate risk-taking. All in all, the results support the negative impact of economic policy uncertainty on risk-taking, conditioned on the macroeconomic outlook in the country and the competition in the industry. (C) 2020 Elsevier B.V. All rights reserved.

Source

Journal of Multinational Financial Management

Volume

54

URI

https://doi.org/10.1177/1096348020913949
https://hdl.handle.net/20.500.12469/2874

Collections

  • Araştırma Çıktıları / PubMed [187]
  • Araştırma Çıktıları / Scopus [1345]
  • Araştırma Çıktıları / WOS [1335]
  • Uluslararası Ticaret ve Finans / International Trade and Finance [41]

Keywords

Corporate risk-taking
Uncertainty
Idiosyncratic volatility
Earnings volatility
Competition
Europe

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