Does Economic Policy Uncertainty Impact Firms’ Capital Structure Policy? Evidence from Western European Economies

Abstract

AbstractThis study specifically investigates the impact of economic policy uncertainty (EPU) on the travel and leisure (TL) companies’ debt holdings policy. To do so, the present study selects 92 publicly listed TL companies operating in Western Europe’s top tourist destinations, and performs both the static and dynamic panel data estimation approaches during the 2005–2019 period. The results reveal that the EPU negatively impacts TL firms’ debt holdings, implying that firms tend to decline in debt levels by rising EPU. Consequently, the results highlight that the level of EPU matters and firms’ debt ratios are relatively lower in countries having a higher EPU and vice versa. Besides, the results underscore that the EPU negatively impacts firms’ debt holdings in each sub-sector however the negative effect is most prominent on the debt ratios of the firms, particularly those operating in gambling, hotels, travel and tourism, and also recreational services sub-sectors. JEL classification: D80, G32, L83