When Policy Uncertainty Comes with Imprecise Signals : The Impacts on Capital Structure

This study investigates the impact of low-quality political signals on the relationship between economic policy uncertainty and firms' capital structure decisions on leverage and debt maturity. We present compelling evidence that low-quality political signals significantly diminish the effect of EPU on these two decisions. Our findings indicate that the observed effect is both statistically and economically significant. Additionally, we examine the efficacy of information asymmetry as the economic channel via which EPU influences capital structure. Our results provide support for the notion that information asymmetry is a valid mechanism for the effects of EPU on firms' leverage, although not for debt maturity