Policy Uncertainty and Investment Goods Price Adjustment: Evidence from China’s Land Leasing Market

42 Pages Posted: 21 May 2020

See all articles by Mo Liang

Mo Liang

Renmin University of China; Renmin University of China - School of Finance

Xiaoyang Li

Jinan University

Jidong YANG

Renmin University of China

Date Written: January 30, 2020

Abstract

Economic policy uncertainty has prominent effect on investment and output. We constructed a simple model revealing that policy uncertainty reduces the total value of investment via both the quantity adjustment channel and the price adjustment channel. Using unique transaction level land leasing data in China, we distinguish the latter channel from the former. On average, 1% increase in policy uncertainty level reduces the land transaction premium by around 3.91%. The impact of policy uncertainty is more profound for firms with tighter financial constraints and lands located in cities with lower rent-to-price ratio. The influence of policy uncertainty becomes weaker after the anti-corruption campaign in China, especially in provinces scrutinized by the teams of disciplinary inspectors from central government, implying that improvements in political environment alleviates the impact of policy uncertainty.

Keywords: Policy uncertainty; firm investment; quantity adjustment; price adjustment

JEL Classification: D810, G12, G310, G320

Suggested Citation

Liang, Mo and Li, Xiaoyang and YANG, Jidong, Policy Uncertainty and Investment Goods Price Adjustment: Evidence from China’s Land Leasing Market (January 30, 2020). Available at SSRN: https://ssrn.com/abstract=3427210 or http://dx.doi.org/10.2139/ssrn.3427210

Mo Liang

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

Renmin University of China - School of Finance ( email )

Ming De Main Building
Renmin University of China
Beijing, Beijing 100872
China

Xiaoyang Li

Jinan University ( email )

Huang Pu Da Dao Xi 601, Tian He District
Guangzhou, Guangdong 510632
China

Jidong YANG (Contact Author)

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

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