This study investigates how economic policy uncertainty (EPU) affects venture capital (VC) contract terms. Using a unique database of contracts between VCs and entrepreneurial firms in China, we provide evidence that VCs include more investor-friendly covenants in contracts when EPU increases. Our findings hold across a battery of robustness checks, including addressing endogeneity concerns and using alternative EPU measures. Our mechanism analysis shows that higher investment risk and increased VCs’ bargaining power might be plausible reasons why EPU positively affects the presence of investor-friendly covenants in VC contracts.

Analyzing data from 3,616 Chinese listed firms, we find a strong positive relationship between policy uncertainty and firms’ exchange rate exposure. This result remains robust after controlling for macroeconomic conditions and addressing endogeneity issues. Notably, policy uncertainty’s impact is significantly stronger for firms with a higher degree of international involvement and for poorly-governed firms. Interestingly, firms use financial hedging more intensively and reduce their operational hedging in high-uncertainty periods. Our results suggest that policy uncertainty exacerbates the impact of currency movements on firms’ financial performance, as firms become increasingly involved in international operations. Consequently, firms should strengthen their corporate governance and make effective use of hedging tools.

Purpose – This study aims to investigate whether firms purchase directors’ and officers’ liability (D&O) insurance when the country-level economic policy uncertainty (EPU) is high. Design/methodology/approach – This study uses D&O insurance data from Chinese listed firms between 2003 and 2019 to conduct regression analyses to examine the association between D&O insurance and EPU. Findings – The results show that government EPU, despite being an exogenous factor, increases the likelihood of firms’ purchasing D&O insurance, and this effect is more pronounced when firms are exposed to great share price crash risk and high litigation risk, suggesting that firms intend to purchase D&O insurance possibly due to the accentuated stock price crash risk and litigation risk associated with EPU. In addition, the results indicate that the effect of EPU on the D&O insurance purchase decision is moderated by the provincial capital market development and internal control quality. Practical implications – The study highlights the role of uncertain economic policies in shareholder approval of D&O insurance purchases. Originality/value – The study enriches the literature on the determinants of D&O insurance purchases by documenting novel evidence that country-level EPU is a key institutional factor shaping firms’ decisions to purchase D&O insurance.

Owing to the liberalisation of financial markets, the impact of international capital flows on the Chinese stock market has become substantial. This study investigates the effects of economic policy uncertainty (EPU), geopolitical risk (GPR), consumer sentiment (CCI), macroeconomic fundamentals (MECI), and money supply (M2) on the correlations between the stock and exchange rate markets. The negative correlation between these two markets has become more pronounced in recent years. Moreover, EPU, GPR, CCI, and MECI negatively impact long-term stock-exchange rate correlations, while M2 has a positive impact. Portfolios of stock-exchange rates effectively reduce risk, especially when considering structural breaks.

This study investigates how economic policy uncertainty (EPU) affects venture capital (VC) contract terms. Using a unique database of contracts between VCs and entrepreneurial firms in China, we provide evidence that VCs include more investor-friendly covenants in contracts when EPU increases. Our findings hold across a battery of robustness checks, including addressing endogeneity concerns and using alternative EPU measures. Our mechanism analysis shows that higher investment risk and increased VCs’ bargaining power might be plausible reasons why EPU positively affects the presence of investor-friendly covenants in VC contracts.

Using subsidiary-level data of 3,863 Chinese nonfinancial listed firms, we find their capital expenditures increase with foreign sales, and the difference arises from the investments of the firms’ foreign subsidiaries. We show that the foreign sales-foreign investment association becomes more sensitive when the economic policy uncertainty (EPU) increases in the domestic market. However, foreign EPU does not play such a significant role. We provide one possible explanation that due to global diversification, MNEs can hedge foreign EPU using their international subsidiary network, resulting in the overall investments unchanged. However, given China’s tight regulatory capital controls, the MNEs may be less able to hedge the domestic EPU, so that they reallocate investments from the domestic markets to the foreign markets, consistent with the transaction cost assumption underlying the real options theory. Robust tests show that access to foreign capital, profitability and institutional factors have little explanatory power over the MNEs’ foreign investment.