The Impact Of Global Economic Uncertainty On Corporate Financial Strategies

Abstract

Global economic uncertainty has emerged as a critical factor influencing corporate financial decision-making in the contemporary business environment. This study examines how economic policy uncertainty affects corporate financial strategies, including capital structure decisions, cash holding policies, and investment behaviors across multinational corporations. The research employs a quantitative methodology, analyzing panel data from 850 publicly listed firms across developed and emerging markets during 2020-2024. The hypothesis posits that heightened economic uncertainty leads corporations to adopt conservative financial strategies characterized by reduced leverage, increased cash reserves, and delayed capital investments. Results indicate a significant negative relationship between economic policy uncertainty and corporate leverage ratios, with firms increasing cash holdings by an average of 18.3% during high uncertainty periods. Statistical analysis reveals that firms with higher uncertainty exposure reduced capital expenditure by 23.7% and decreased debt-to-equity ratios by 15.2%. The study demonstrates that economic uncertainty significantly influences risk management practices, with 67.4% of surveyed firms implementing defensive financial strategies. Findings suggest that corporations prioritize financial flexibility and liquidity preservation during uncertain economic conditions, fundamentally altering traditional financial management paradigms and emphasizing the importance of adaptive strategic frameworks in volatile global markets.