Corporate Investment, Economic Policy Uncertainty and Geopolitical Risk in BRICS Countries

Abstract

ABSTRACT

Objective: to investigate the effects of economic policy uncertainty (EPU) and geopolitical risk (GPR) on the level of corporate investment (INV) of publicly traded companies from emerging countries that are members of the BRICS group.

Methodology: data from financial statements of companies headquartered in Brazil, Russia and China found in the Thomson Reuters Refinitiv Datastream database and multiple linear regression models with fixed effects panel data.

Results: the results indicated a negative relationship between EPU, GPR and both with INV, with different intensities between countries. This indicates that periods of high EPU or GPR lead to a reduction in the level of INV. Robust results after controlling for firm characteristics (size, leverage, operating cash flow, sales growth, profitability, Tobin's Q, cash holding and tangible assets) and macroeconomic indicators (such as GDP and inflation). These results also emphasized that environments with less economic and geopolitical uncertainty favor the level of investment of companies from emerging countries.

Contributions: relevant implications for the literature and stakeholders. The results broaden the understanding of the effects of uncertainty and risk on corporate investment decisions in emerging countries as well as negative effects on investment decision-making and for governments, regulators and economic policy makers, signaling predominantly negative effects of EPU and GPR on investments/possibilities of economic growth, favoring actions in favor of reducing such effects.

Keywords: Corporate investment, economic policy uncertainty, geopolitical risk.