Policy uncertainty and intellectual capital investment

ABSTRACT

This paper investigates the relationship between economic policy uncertainty (EPU) and corporate intellectual capital (IC) investment. The empirical results, which are based on a wide range of econometric tests, demonstrate a negative impact of EPU on IC investment, thus lending support to the notion that EPU hinders corporate IC investment. The analysis also indicates that the negative impact of EPU on IC investment varies cross-sectionally. It is prominent only in large firms and financially constrained firms, suggesting such firms reduce or delay IC investment during heightened EPU periods. EPU does not significantly affect the IC investment in small firms and firms with less financial constraints. Our findings are broadly consistent with existing studies in the literature and remain qualitatively unchanged after a battery of robustness and endogeneity tests.

KEYWORDS:

• Corporate investment
• economic policy uncertainty
• intellectual capital
• instrumental variables
• United Kingdom

JEL CLASSIFICATION:

• G30
• G38

Data availability statement

Data are available from the sources identified in the paper.

Acknowledgments

We are grateful to the Editor, Professor Mark Taylor, the anonymous referee, Professor Marina Dabic (University of Zagreb), Dr. Cuong Nguyen (Lincoln University), Giang Nguyen (RMIT University), and four anonymous readers whose comments substantially improved our manuscript. All remaining errors are ours.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ IE includes personnel expense, R&D expenditure, and advertising and marketing expenditure (Sydler, Haefliger, and Pruksa 2014).

² Similar to firm size classification, we sort high and low Altman Z-score firms by Z-score’s median for each year.

Additional information

Funding

This research is funded by National Economics University, Hanoi, Vietnam under grant number [16/HD-CBQT1.2020.16].