Abstract:

We study how economic policy uncertainty (EPU) affects firms’ boundary choices. In theories of the firm, firms trade off internal redeployment against market-based adjustment when transaction costs, asset specificity, and financing frictions vary. Using a large panel of U.S. public firms and text-based measures of product-market scope, we show that higher EPU shifts firms toward internal expansion into related product markets with stronger asset complementarities and vertical integration. This response strengthens under tighter financing conditions and greater investment irreversibility, while the investment intensity of scope expansion declines. These findings identify product-market scope as a key margin of adjustment to policy uncertainty and clarify how uncertainty reshapes firm boundaries and investment behavior

Please choose your submission type: Full Paper

Primary Track: Financial Management

Keywords: Corporate Finance ;Financial Decision Making ;Financial Strategy ;Mergers and Acquisitions ;Risk Management

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Prof Anna Du