Does economic policy uncertainty matter for a firm's leverage and speed of adjustment?
Asia-Pacific Journal of Business Administration
ISSN: 1757-4323
Article publication date: 3 October 2023
Abstract
Purpose
This research intends to investigate the impact of economic policy uncertainty (EPU) on the firm's leverage and its adjustment speed.
Design/methodology/approach
This study applies dynamic panel data modeling by using a partial adjustment model. The study is based on secondary data of the non-financial firms that are listed on the Pakistan stock exchange. For the analysis purpose, the study applies the generalized method of moments (GMM) estimation technique and uses a newly developed text-based measure of economic policy uncertainty.
Findings
The results show the negative impact of EPU on leverage decisions but a positive impact of EPU on leverage speed of adjustment for both, short-run and long-run economic policy shocks. Additional analysis reveals that the negative influence of long-run policy shocks on leverage decisions is moderated through profitability, and the negative influence of short-run policy shocks on leverage is moderated through firm size, tangibility and available growth prospects. However, the significant positive impact of EPU on the leverage speed of adjustment in both short and long-term policy shocks indicates that the speed of adjustment for these firms is not affected by policy shocks.
Originality/value
This research contributes to the existing literature on capital structure dynamics,by investigating the impact of EPU on firm financing decisions and estimating the adjustment speed of capital structure in a developing market context. The study also extends the existing literature by applying the concept of long-run and short-run economic policy uncertainty in the capital structure dynamic framework. Additionally, the new news-based measure of EPU is used. Moreover, it also looks into the COVID-19 effect on the relationship.
Keywords
Acknowledgements
Erratum: It has come to the attention of the publisher that the article: Aftab, M., Shehzadi, S. and Qureshi, F. (2023), “Does economic policy uncertainty matter for a firm’s leverage and speed of adjustment?”, Asia-Pacific Journal of Business Administration, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/APJBA-10-2022-0452, incorrectly listed the affiliations of the author Fiza Qureshi. The affiliation has been amended to include TIFIES Research Group, University of Southampton – Malaysia, and Southampton Malaysia Business School as two separate affiliations.
Additionally, it has come to the attention of the publisher that the affiliations of Muhammad Aftab and Saman Shehzadi have incorrectly listed the location of COMSATS University Islamabad as ‘Wah Cantt, Pakistan’. The affiliation has been amended to include the correct location as ‘Islamabad, Pakistan’. These errors were introduced in the typesetting process and have been corrected in the online version of the article. The publisher sincerely apologizes for this error and any inconvenience caused.
Citation
Aftab, M., Shehzadi, S. and Qureshi, F. (2023), "Does economic policy uncertainty matter for a firm's leverage and speed of adjustment?", Asia-Pacific Journal of Business Administration, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/APJBA-10-2022-0452
Publisher
:Emerald Publishing Limited
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