Investment heterogeneity and economic policy uncertainty in Brazil

Resumen

Recent literature investigating the relationship between investment and economic policy uncertainty (EPU) has primarily focused on the conditional mean effects on corporate investment due to fluctuations in uncertainty. However, this approach overlooks potential firm heterogeneity within listed companies. Single coefficients may not adequately capture the nuanced influence of EPU across different points of distribution of investment. Supported by the Real Options approach, this paper examines the EPU and corporate investment in Brazil employing Unconditional Quantile Regression approach. This method allows to investigate how the impact of EPU varies across the distribution of corporate investment, addressing the issue of firm heterogeneity. The research sample comprised 170 Brazilian firms listed on the B3 stock exchange (Brasil, Bolsa e Balcão) from 2010 to 2022, with data collected on a quarterly basis. Capital expenditures and the EPU Index were used as proxies for corporate investment and uncertainty, respectively. Findings confirm a negative relationship. Furthermore, the results suggest that the impact of EPU shocks is amplified for firms with higher levels of capital expenditures to assets ratio.