Testing the effect of government policy uncertainty on corporate investment (revolutionary Markov switching approach)
Subject Areas : Financial Knowledge of Securities Analysissomaieh loni 1 , Ezatollah Abbasian 2 * , Gholam Ali Haji 3
1 - PhD student, Department of Economics, Aliguderz Branch, Islamic Azad University, Aliguderz, Iran
2 - Associate Prof., Department of Public Administration, Faculty of Management, Tehran University, Tehran, Iran
3 - Assistant Prof., Department of Economics, Arak Branch, Islamic Azad University, Arak, Iran
Keywords: Uncertainty of government policies, corporate investment, recession and prosperity, Markov switching regime change model,
Abstract :
In this study, we seek to test the effect of government policy uncertainty on the investment of listed companies in recession and boom regimes. For this purpose, the effect of study variables during the period of 1380 to 1400 is investigated by using the rotation model and the Markov switching (MS) regime change. Based on the results of the model estimation, with the increase of government policy uncertainty, corporate investment decreases. In general, the uncertainty of government policies increases the risk of investment projects and leads to a decrease in corporate investment. Especially in an inflationary situation where the value of money decreases, the nominal interest rates for savings and reserves are low. In this case, investing in currency, real estate, gold, etc., provides a higher interest rate compared to keeping reserves in the banking system. This causes a decrease in the desire to save and reduces the funds available for investment in the banking system, and as a result, corporate investment decreases.