Author(s)

Penghong Qian

Corresponding Author

Penghong Qian

ABSTRACT

In recent years, it is apparent that the trend of finance and financial development has been increasing in China. However, due to the fluctuation of the economy, it is crucial to guarantee the sustainability of enterprises. Domestic and foreign studies have shown that the increase of economic policy uncertainty (EPU) significantly inhibits enterprises' investment in the real economy. Then, this conclusion arouses the debate of whether the financialization of enterprises results from the increase of economic policy uncertainty. Based on a panel vector autoregressive model, this paper researches the connections among economic policy uncertainty, enterprise investment and enterprise profitability. It gives the new conclusion that (EPU) has a detrimental impact on both enterprise investment and enterprise profitability, while investment and profitability influence EPU simultaneously. The result shows that economic policy certainty greatly promotes investment behavior of the enterprise and conduce to enterprise profitability. Thus, confining the research perspective to the relation among those three factors is of great value. Therefore, the government should limit the instability of economic policy to consolidate enterprises' profitability and investment behavior.

KEYWORDS

Economic policy uncertainty, investment, profitability