This paper examines how economic policy uncertainty (EPU) affects bank valuations. Using a large sample of banks over a long period, we find that EPU has a negative effect on bank valuations. One explanation for this result is that EPU reduces bank loan growth, and lower loan growth then leads to lower bank valuations. Consistent with this explanation, we find that the negative effect of EPU is more pronounced for banks with a higher ratio of loans to total assets.
Zelong He & Jijun Niu (2018) The effect of economic policy uncertainty on bank valuations, Applied Economics Letters, 25:5, 345-347. https://doi.org/10.1080/13504851.2017.1321832
Applied Economics Letters
The effect of economic policy uncertainty on bank valuations
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