Economic policy uncertainty and company's human capital

Abstract

Purpose

The research aims to examine the impact of economic policy uncertainty (EPU) on a company's behaviour concerning its human capital. Additionally, the difference in effect for companies with specific human capital is analysed.

Design/methodology/approach

The hypotheses are tested on a multi-industry sample of large public companies from five European countries, using panel data modelling. The index of Baker et al. (2016) is used to measure EPU.

Findings

In the case of increasing EPU on one standard deviation, companies tend to reduce their human capital by approximately 1.7%. Moreover, despite theoretical assumptions, the effect on companies with more specific human capital is twice stronger. The heterogeneity of effect across countries and industries is also present.

Practical implications

Regulators and governments should consciously introduce changes in relation to regulations and decrease the uncertainty of economic policy to stimulate corporate investments in human capital.

Originality/value

This is the first study that considers the mechanism of EPU and its influence on corporate human capital. The results suggest that concerns regarding economic policy cause companies to reduce human capital.

Citation

Naidenova, I. (2022), "Economic policy uncertainty and company's human capital", Journal of Economic Studies, Vol. 49 No. 5, pp. 902-919. https://doi.org/10.1108/JES-11-2020-0545