Economic policy uncertainty, Covid-19 and corporate investment: Evidence from the gold mining industry

Mining is a capital-intensive sector that requires substantial upfront investments and continuous capital expenditure to sustain and improve production. This study investigates the impact of Economic Policy Uncertainty (EPU) on the investment decisions of the top 5 gold mining countries, namely Australia, China, Russia, the USA, and Canada, with a focus on the COVID-19 Pandemic. Using a two-step generalized method of moments, we analyze data from 333 gold mining companies from 2006 to 2021. Our results demonstrate that the EPU index has a negative effect on the investment decisions of gold mining companies during the COVID-19 Pandemic. We also utilize quantile regression analysis, which shows that the estimated coefficients for the low and high quantiles are significant. Our study reveals that during periods of uncertainty, gold mining companies tend to be risk-averse, which subsequently dampens investment projects. Furthermore, the capital-intensive nature of the gold mining sector renders companies to be more vulnerable to economic conditions. These findings have significant policy implications for investors, portfolio managers, and policymakers, which will be discussed in the conclusion section.

Stock Comovement and Financial Flexibility

We develop a dynamic model of corporate investment and financing, in which shocks to the value of collateralizable assets generate variation in firms' debt capacity. We show that the degree of similarity among firms' financial flexibility forecasts cross-sectional variation in return correlation. We test the implications of the model with firm-level data in two empirical analyses using i) an instrumental variable approach based on shocks to the value of collateralizable corporate assets and ii) the outbreak of the COVID-19 crisis as an event study. We find that firms in the same percentile of the cross-sectional distribution of financial flexibility have 62% higher correlation in stock-return residuals than firms 50 percentiles apart.

Managers' cultural origin and corporate response to an economic shock

We exploit the exogenous Covid-19 shock in a bicultural area of Italy to identify cultural differences in the way companies respond to economic shocks. Firms with managers of diverse cultural backgrounds resort to different forms of government aid, diverge in their investment decisions, and have different growth rates. These findings are consistent with cultural differences in time preferences and debt aversion. Specifically, we find that the response of managers belonging to a more long-term oriented culture is characterized by a lower recourse to debt, more investments and higher growth rates. Overall, our results show that the cultural origin of managers significantly affects firms' reaction to economic shocks and real economic outcomes. © 2023 Elsevier B.V.

Industry 4.0 Technologies As Enablers Of Sustainability Risk Management

Motivation: Companies operate in a volatile, uncertain, complex, and ambiguous (VUCA) business environment, as evidenced by massive collapses in commodity prices, acts of terrorism, cyber security threats, natural disasters, technological failures, and pandemics. Numerous reports indicate that the top risks with the highest probability of occurrence in the next decade include extreme weather events, failure of climate protection measures, and man-made environmental damage (The Global Risk Report 2021 of the World Economic Forum, The World Business Council for Sustainable Development report and many others). The UN Sustainable Development Goals (SDGs) cover the above challenges and define the agenda for solving them to 2030. The intensification of environmental and social risks reinforces the need to deepen research and explore new ways of managing sustainability risks (SRs). At the same time, businesses are undergoing the technology transformation (Industry 4.0) accelerated by the COVID-19 pandemic. It became necessary to shift some investment to this business area, which also needs to be supported by additional capital. The technology-driven transformation can significantly support companies in managing SRs. Aim: The aim of the study is to diagnose the importance of investments in Industry 4.0 technologies (T4.0) as potential enablers supporting sustainability risk management from the perspective of supply chains. Results: SRs represent one of the critical risk areas of the 21st century. Despite the well-recognized potential of the T4.0 implementation for sustainable supply chain management, the research studies concentrated on their potential role within SR management in international supply chains are limited and fragmented. The diagnosis of the growing importance of T4.0 supporting risk management at strategic and operational levels of business activities implies the recommendation to integrate their use in this area into the technological transformation, and then consistently into planning and financing of development and implementation projects. Companies may attempt to address these challenges through Environmental, Social, and Governance (ESG) initiatives.

Prediction of Post-COVID-19 economic and environmental policy and recovery based on recurrent neural network and long short-term memory network

COVID-19 has brought significant impacts on the global economy and environment. The Global Economic-and-environmental Policy Uncertainty (GEPU) index is a critical indicator to measure the uncertainty of global economic policies. Its prediction provides evidence for the good prospect of global economic and environmental policy and recovery. This is the first study using the monthly data of GEPU from January 1997 to January 2022 to predict the GEPU index after the COVID-19 pandemic. Both Recurrent Neural Network (RNN) and Long Short-Term Memory (LSTM) models have been adopted to predict the GEPU. In general, the RNN outperforms the LSTM networks, and most results suggest that the GEPU index will remain stable or decline in the coming year. A few results point to the possibility of a short-term increase in GEPU, but still far from its two peaks during the first year of the COVID-19 pandemic. This forecast confirms that the impact of the epidemic on global economic and environmental policy will continue to wane. Lower economic and environmental policy uncertainty facilitates global economic and environmental recovery. Economic recovery brings more opportunities and a stable macroeconomic environment, which is a positive sign for both investors and businesses. Meanwhile, for the ecological environment, the declining GEPU index marks a gradual reduction in the direct impact of policy uncertainty on sustainable development, but the indirect environmental impact of uncertainty may remain in the long run. Our prediction also provides a reference for subsequent policy formulation and related research.

Infectious disease and corporate activities

We investigate the effect of equity market volatility due to infectious disease on U.S. firms’ corporate activities from 1985 to 2020. Consistent with the theoretical framework, firms decrease their debt levels, debt maturity, corporate investments and dividend payout, and increase their cash holdings, research and development expenditure.

Corporate investment and government policy during the COVID-19 crisis

We investigate the impact of the US government response to the COVID-19 pandemic, including stringent social measures and economic support packages, on corporate investment. The empirical results show that despite the overall decreased investment due to the economic impact of the pandemic, the government response to COVID-19 and economic supports have a positive effect on corporate investment after subtracting the impact of the pandemic on firm-level investment. We find that the impact of economic support packages on corporate investment is stronger than that of health containment policies. Further analyses show that the effect is weak in firms with higher levels of political risk and investment irreversibility, while being more pronounced in firms with higher technology intensity. Our findings provide fresh insights into the firms’ reaction to the government policies during the pandemic and suggest that both social measures and economic support are vital to restoring corporate investment as well as the economic recovery process.

Tobin's q and corporate investment with a pandemic shock.

We analyze the impact of COVID-19 on investment by incorporating a stochastic transmission shock into the standard q theoretical framework. Our model suggests that the adjustment cost amplifies the negative pandemic shock to investment and decreases firm value. In particular, when the infection rate is low, the reduction in investment is higher for firms with low adjustment costs in that they are more sensitive to the infection rate. An optimistic expectation of the arrival rate of a vaccine reduces the probability of executing mitigation policy. Moreover, the uncertainty of the pandemic increases investment and enhances firm value during the pandemic regime.