Author(s): Amit Hedau
This study examines the impact of economic policy uncertainty (EPU) on firms' risk-taking behaviour. The study uses firm-level data from India for the period 2010-2024. According to the data, EPU can drastically reduce the amount of risk that companies take. However, this substantial evidence is mostly available for firms that are not state-controlled. Moreover, the extent to which a firm's financing constraints affect its risk-taking is a critical variable in determining how EPU affects firms' risk-taking; research shows that firms with financing constraints are more likely to be risk-averse when faced with EPU shocks. To help firms make more informed decisions about high-risk, high-reward investment initiatives, this research provides both theoretical foundations and practical guidance.