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https://hdl.handle.net/2142/121306
Description
Title
Three essays on corporate finance and uncertainty
Author(s)
Kamble, Vaibhav Keshav
Issue Date
2023-07-07
Director of Research (if dissertation) or Advisor (if thesis)
Nelson, Carl
Doctoral Committee Chair(s)
Nelson, Carl
Almeida , Heitor
Committee Member(s)
Ridley , William
Devadoss , Stephen
Department of Study
Agr & Consumer Economics
Discipline
Agricultural & Applied Econ
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Corporate investment, trade policy, uncertainty, instrumental variable, real options, Trump
Abstract
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.
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