Economic policy uncertainty and enterprise investment decision: Evidence from China

We empirically examine the impact of economic policy uncertainty (EPU) on the investment decision of China's high-tech manufacturing industry based on the company's investment structure. There are several findings. First, innovation investment and maintenance investment are mutually exclusive. However, enterprise prefers innovation investment when facing higher EPU. Second, excess return, asset irreversibility and external market demand are three important mechanisms of the impact of EPU on the corporate investment decision. Finally, higher financing constraints weaken the impact of EPU on investment decision. Firms with higher capital intensity tend to reduce both innovation investment and maintenance investment when EPU rises. The research shows that when the EPU increases, enterprises in China's high-tech manufacturing industry are more inclined to choose innovation investment.

Automated summary

The impact of economic policy uncertainty (EPU) on China's high-tech manufacturing industry's investment decision has been studied empirically. It is found that in higher EPU situations, companies in this industry tend to prioritize innovation investment, with higher capital intensity firms more likely to decrease overall investment.