Economic policy uncertainty and multinational companies

Abstract

We study the impact and propagation of economic policy uncertainty (EPU) via subsidiary networks of US multinational corporations (MNCs). We find that increases in host-country EPU lead to significant decreases in MNC valuations. We document heterogeneous effects across key firm- and country-level dimensions such as intangible capital intensity, financial constraints, and country institutional quality. Higher EPU in host countries is associated with a decline in the growth of local MNC subsidiary-level assets and employment. We find no evidence of significant average spillover effects of host-country EPU on MNC subsidiaries in other countries and some evidence of negative spillover effects among vertically linked subsidiaries.