Economic policy uncertainty and capital structure choice: Evidence from China

Abstract

A c c e p t e d M a n u s c r i p t Highlights  Chinese firms' leverage ratios decrease when the economic policy uncertainty increases.  This effect is heterogeneous across firms in terms of regional marketization, ownership and bank-firm relationship.  This effect is sourced from the deterioration of the external financing environment imposed by economic policy uncertainty  Firms adjust their financing structures by using more trade credit when economic policy uncertainty increases. relationships, mitigate the negative effect of policy uncertainty. Moreover, we provide consistent evidence that this negative effect is sourced from the deterioration of the external financing environment. We also find that firms adjust their financing structures by using more trade credit when economic policy uncertainty increases. Our results are robust to sample selection, data frequency, model specification and endogeneity. *Highlights (for review)

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