Economic Policy Uncertainty and Firm Value: Impact of Investment Sentiments in Energy and Petroleum

Abstract

This study seeks to determine how economic policy uncertainty (EPU) influences investment decisions and the market value of the Pakistan Stock Exchange. This study examines investment and operational data from 249 energy and petroleum companies between 2015 and 2020 and macroeconomic variables such as EPU. This study investigates the moderating effects of EPU on investments in fixed and intangible assets and its effect on Tobin’s Q and the market price per share. The outcomes demonstrate that EPU reduces the costs of both tangible and intangible assets for businesses. In addition, companies with a higher Tobin’s Q and market price per share are more impacted by uncertain corporate investment policies. However, financial leverage is negatively correlated with share price and positively correlated with earnings per share and earnings per unit. Tobin’s Q positively correlates with financial leverage, indicating that firms that raise capital through debt are more likely to create value for investors. The research indicates that market-dependent enterprises are more susceptible to the unpredictability of monetary policy. According to this study, consistent application and open communication of economic policies are likely to increase the efficacy of company investments, resulting in more effective resource allocation and business decision-making.