Does Economic Policy Uncertainty Affect Corporate Leverage In South Korea?
Abstract
This paper investigates how economic policy uncertainty (EPU) affects the
leverage deviation of listed firms in South Korea in the period from 1999 to 2021. The
empirical results show that EPU negatively affects book leverage deviation but
positively affects market leverage deviation. Further analysis indicates that the impact
of EPU through the financial distress cost channel is negative for both book and market
leverage deviation. In contrast, the effect of EPU on leverage deviation through
investment spike only works when using long-term and short-term market leverage to
compute leverage deviations.