This paper examines the impact of economic policy uncertainty (EPU) on corporate investment decisions using an international sample of firms. It aims to assess whether increased policy uncertainty discourages investment and to explore the moderating role of institutional environments.
The study relies on a panel dataset of firms across multiple countries over the period 2000–2017. Using panel regression models, the analysis controls for firm-specific characteristics and macroeconomic factors. Several robustness checks and alternative specifications are performed to ensure the validity of the results.
The results show that higher levels of EPU significantly reduce corporate investment. This negative effect is stronger in countries characterized by weaker institutional quality, suggesting that institutional frameworks play a key role in mitigating the adverse effects of uncertainty. The findings remain robust across different model specifications and measures of uncertainty.
The results highlight that policy credibility and predictability are essential for efficient investment, as institutional strength alone may be insufficient under high uncertainty.
This study contributes to the literature by providing cross-country evidence on the relationship between policy uncertainty and investment, extending prior research that primarily focuses on single-country analyses. It highlights the importance of institutional quality in shaping firm responses to uncertainty and offers useful insights for policymakers seeking to foster stable investment environments.
