Economic policy uncertainty and firm-level stock returns: Further evidence from China

Abstract

This study investigates the effects of Global economic policy uncertainty (EPU) and Chinese EPU on yearly firm-level stock returns of 823 Chinese firms. The data is collected from www.policyuncertainty.com and the Thomson Reuters Eikon database. The findings indicate that increases in Chinese EPU have a negative effect on firm-level stock returns, while Global EPU has a positive impact. Interestingly, the negative effect is more pronounced in high-debt capitalized and high-profit firms and less evident in firms with high market-to-book ratios and significant assets. Moreover, while the impact of Global/Chinese EPU on firm-level stock returns exhibited variability during the period 2002–2007, it was found to be strongly significant in the period 2008–2022. Finally, the effect of Global/Chinese EPU on Chinese firm-level stock returns is more significant and consistent in the Shanghai market than in the Shenzhen market, suggesting a difference in diversification capability between these two markets.