The impact of economic policy uncertainty on real estate firms’ debt default risk

Based on the panel data of China’s listed real estate firms from 2001 to 2024, this article employs ordinary least squares (OLS) and double machine learning (DML) to empirically test the impact of economic policy uncertainty (EPU) on the debt default risk (DDR) of real estate firms. The findings show that EPU leads to an increase in real estate firms’ DDR by reducing their sales revenue growth level and increasing their short-term debt for long-term investment level. The adverse impact of EPU on real estate firms’ DDR has a persistent effect spanning two years. EPU has a more pronounced adverse impact on real estate firms when residents’ income growth level is low and the residents’ debt burden level is high, and this impact is more pronounced for firms with senior managers exhibiting high overconfidence. The research findings reveal the mystery behind the concentrated outbreak of DDR among China’s real estate firms from the perspective of policy volatility and offer policy insights for emerging economies on how to mitigate real estate risks from both the supply and demand sides.