Moderating effect of institutional environment on economic policy uncertainty: evidence from firms’ investments

Abstract

Abstract This paper investigates the link between corporate investments, eco-nomic policy uncertainty and the quality of institutional environments. The corporate investments of private firms in 10 European countries from 2009 to 2018 were examined and a negative effect of economic policy uncertainty on corporate investments was identified. More importantly, it was determined that the higher-quality institutional environments reduced the negative impact of economic policy uncertainty on corporate investments, especially when economic policy uncertainty was high. We also demonstrate the effects of government stability, legislative strength, government cohesion and socioeconomic conditions that mitigate the negative effects of economic policy uncertainty on corporate investments.