Corporate Asset Allocation under Economic Policy Uncertainty: Avoidance Behaviour and the Conditional Value of Digital Economic Assets

Abstract

Economic policy uncertainty has become an important factor affecting firms’ investment decisions in recent years. When uncertainty increases, firms may become more cautious about long-term investment and prefer to hold safer assets with higher liquidity. This paper studies how economic policy uncertainty influences firms' allocation between traditional safe assets and digital economic assets. It also examines whether this allocation affects firms' short-term performance differently under uncertain conditions. Using panel data from Chinese A-share listed companies between 2014 and 2023, this study applies fixed-effects regression models for empirical analysis. The results suggest that firms tend to increase traditional safe asset holdings and reduce digital asset investment when economic policy uncertainty rises. In addition, digital economic assets are negatively related to short-term return on assets (ROA) on average. However, the interaction results show that the negative effect becomes weaker under higher levels of uncertainty. These results may indicate that firms become more conservative during uncertain periods, but reducing digital investment too much could also weaken firms' ability to adapt to changing environments in the long run.