Effects of Policy Uncertainty on Firm-Level Productivity

Does policy uncertainty affect productivity? Policy uncertainty creates delays on decision-making as firms await new information about prices, costs, and other market conditions before committing resources. Such delays can have real consequences on firms’ productivity and corporate decisions. We find that economic policy uncertainty has a negative impact on firm-level productivity. We further show that the negative impact is alleviated by firms’ high cash holdings or prior committed irreversible investments. These findings are robust to various specifications.