The effect of economic policy uncertainty and herding on leverage: An examination of the BRICS countries

Figures & data

Figure 1. Index of Economic Policy Uncertainty for the USA, 1985 to 2014.

Source: Baker et al. (2016)

Figure 2. A firm’s capital structure with and without uncertainty.

Table 1. Summary of overall BRICS Results—OLS and GMM Estimations

	EPU on Leverage (A)	EPU on ST Leverage (B)	EPU on LT Leverage (C)	EPU and Ht on Leverage (D)
	OLS Estimations
Brazil	Firm age	Firm age	Firm age	D(Market_Capitalisation) Ht
Russia	C Leverage (1)	C D(Tangibility) Short Term Leverage (1)	C Long Term Leverage (1)	C D(EPU) Firm age Leverage (1) D(Market_Capitalisation) Ht
India	C Leverage (1)	C D(Sales) Short Term Leverage (1)	C Long-Term Leverage (1)	C D(EPU) D(Market_Capitalisation) Ht
China	C D(Tangibility) Leverage (1)	C D(Profitability) Short-Term Leverage (1)	Long-Term Leverage (1)	C Leverage (1) D(Profitability) Ht
South Africa	C Leverage (1)	C Short-Term Leverage (1) D(EPU) Firm age D(Sales) D(Market_Capitalisation	C Long-Term Leverage (1)	C D(EPU) D(Sales) D(Tangibility) Leverage (1) D(Market_Capitalisation) Ht
	GMM Estimations
Brazil	-	-	-	-
Russia	Leverage (1)	Short-Term Leverage (1)	Long-Term Leverage (1)	Leverage (1)
India	-	-	-	C D(EPU) D(Profitability) D(Market_Capitalisation) Ht
China	-	Short-Term Leverage (1)	Long-Term Leverage (1)	-
South Africa	C Leverage (1)	Short-Term Leverage (1)	Long-Term Leverage (1)	C Leverage (1) Ht

* Significant at the 10% level, ** Significant at the 5% level, *** Significant at the 1% level.

Table 2. Comparison of the herding effects

Leverage in BRICS	Ht (OLS)	Hm (CAPM)
BRAZIL	0.999148**	2.316705**
	(+)	(+)
RUSSIA	0.964966**	−0.000186
	(+)	(-)
INDIA	0.988839**	−0.000457
	(+)	(-)
CHINA	0.990808**	0.002762
	(+)	(+)
SOUTH AFRICA	0.965842**	8.34E-05
	(+)	(+)

* Significant at the 10% level, ** Significant at the 5% level, *** Significant at the 1% level.

Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593–21. doi:10.1093/qje/qjw024

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