Matousek, Roman and Panopoulou, Ekaterini and Papachristopoulou, Andromachi (2020) 'Policy uncertainty and the capital shortfall of global financial firms.' Journal of Corporate Finance, 62. ISSN 0929-1199

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Abstract

This paper examines how economic policy uncertainty affects financial firms' capital shortages in the event of a new crisis. By employing a global economic policy uncertainty index, we show that an increase in policy uncertainty leads to future capital shortfall increases in the event of a severe market decline. This effect of policy uncertainty is of a similar magnitude for all firms across all regions and sectors, albeit with a few exceptions. As expected, well-capitalized financial firms are less affected. Our findings have important implications for policymakers and politicians, since if their response during a severe market decline is not timely and decisive, the delay will come at a cost. Further, in terms of the implications for firms' managers, we show that during periods of elevated policy uncertainty and a severe market downturn, firms will face additional, unexpected capital requirements.

Item Type:	Article
Uncontrolled Keywords:	Policy uncertainty, Systemic risk, Financial stability, Capital shortfall
Divisions:	Faculty of Social Sciences > Essex Business School Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User:	Elements
Date Deposited:	30 Jan 2020 10:18
Last Modified:	07 Jul 2021 01:00
URI:	http://repository.essex.ac.uk/id/eprint/26409

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