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Uncertainty, Stock Prices, and Debt Structure: Evidence from the U.S.-China Trade War
2022
Federal Reserve Bank of Dallas, Working Papers
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Using the recent U.S.-China trade war as a laboratory, we show that policy uncertainty shocks have a significant impact on stock prices. This impact is less negative for firms that heavily rely on bank debt whereas non-bank debt does not have a mitigating effect. Moreover, the mitigating effect of bank debt is concentrated among zombie firms. A zombie firm that derives half of its capital from bank debt has no negative stock price reaction to increased uncertainty. These results are consistent
doi:10.24149/wp2212
fatcat:a54bicbaujaxzf76xft2q42kwq