We revisit previous influential studies documenting a seemingly robust relationship between economic uncertainty and corporate investment.
We conduct analysis using a comprehensive list of 27 distinct economic uncertainty measures, controls based on 128 variables and consideration of intangible capital investment as well as physical capital investment.
We present novel evidence that, in contrast to the previous studies, S&P 500 option-implied volatility and the economic policy uncertainty (EPU) index do not exhibit a robust relationship to corporate investment, while the monetary policy uncertainty measure by Husted et al. (2020) is the most significantly and robustly related to firms' investment decisions. The monetary policy uncertainty also has a long-lasting effect on investment for up to eight quarters.
We provide the first comprehensive study that provides reassessment of the relationship between the economic uncertainty measures and corporate investment with an expanded sample size and wide coverage.
