The interplay of economic policy uncertainty and corporate investment: analyzing the moderating influence of financial sector development in BRICS

Abstract

This study aims to examine the moderating effect of FSD on the relationship between EPU and corporate investment in the BRICS nations between 2010 and 2022. It looks at how a developed financial sector can lessen these effects and aims to offer empirical evidence on the mechanisms through which EPU influences corporate investment levels. Using a large dataset with 15,132 firm-year observations, this study uses system GMM panel EGLS and fixed effect models. The results show that corporate investment is considerably reduced by higher EPU levels, underscoring the detrimental effect of policy uncertainty on business investment choices. On the other hand, FSD has a positive moderating effect that protects against the damaging effects of EPU and encourages more corporate investment. To create an environment that is favorable for investment, the study emphasizes the significance of sound economic policies and a sophisticated financial sector. To improve investment resilience and economic growth, policymakers should give regulatory clarity and financial sector reforms top priority. By incorporating insights into how EPU and FSD interact to influence corporate investment behavior in emerging economies. It offers empirical data that broaden theoretical comprehension and has applications for stakeholders in the financial sector and policymakers.

Keywords

• Economic policy uncertainty
• financial sector development
• corporate investment
• BRICS
• system GMM
• Finance