Three essays on corporate finance and uncertainty

From 2016 to 2019, the United States and China engaged in a trade conflict. As a result of tariffs imposed by the US and retaliation from China that started in 2018, the US economy witnessed an unprecedented increase in trade policy uncertainty (TPU). Using a new instrumental variable, I find a significant negative relation between aggregate TPU and corporate investment. Deviating from the existing literature in corporate finance that uses measures of overall economic policy uncertainty (EPU), I use a focused measure of TPU to show that a real options channel partly drives the relationship between uncertainty and corporate investment. Furthermore, I identify a foreign exchange channel: businesses more exposed to exchange rate fluctuations are also more susceptible to the negative effect of TPU. These findings are robust to controlling for firm-level and time-level fixed effects, using an alternative definition of aggregate TPU and firm-level (rather than aggregate) TPU.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Agricultural & Applied Econ

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2023

Author dc:creator

• Kamble, Vaibhav Keshav

Contributors dc:contributor

• Nelson, Carl
• Almeida , Heitor
• Ridley , William
• Devadoss , Stephen

• Corporate Investment
• Trade Policy
• Uncertainty
• Instrumental Variable
• Real Options
• Trump

Statement dc:rights

• Copyright 2023 Vaibhav Kamble

Language dc:language

en, eng

Handle dc:identifier

https://hdl.handle.net/2142/121306

OAI record oai:identifier

https://www.ideals.illinois.edu/oai-pmh?verb=GetRecord&metadataPrefix=etdms&identifier=oai%3Awww.ideals.illinois.edu%3A2142%2F121306