Economic policy uncertainty, marketization level and firm-level inefficient investment: Evidence from Chinese listed firms in energy and power industries

Highlights: • Uncertainty concerning economic policy negatively affects firms' inefficient investment. • The degree of marketization attenuates the above association. • Government subsidy, managerial ownership and external auditors influences the relation between economic policy uncertainty and inefficient investment This study examines the impact of economic policy uncertainty on inefficient investment of energy and power firms. Analyzing a sample of publicly listed energy and power firms in China, we show that uncertainty concerning economic policy negatively affects firms' inefficient investment. This influence is more prominent for firms headquartered in the regions with a low level of marketization. These findings are robust to use alternative measures of corporate inefficient investment and economic policy uncertainty, two-way clustering method, and two-stage least squares approach. In addition, our results indicate that the strength of the relationship between economic policy uncertainty and inefficient investment is reinforced for firms with high government subsidies, less managerial ownership, and weak external auditors.