Chinese Monetary Policy Uncertainty and Firm Investment Efficiency

In the context of China's economic downturn, monetary policy uncertainty (cmpu) has increased as the Chinese government implements various monetary policy packages to stimulate economic development. This paper examines the impact of cmpu on firms' investment efficiency using a sample of Chinese listed firms from 2011 to 2021. Our results indicate that uncertainty in China's monetary policy leads to increased inefficient investment, both in terms of overinvestment and underinvestment. The results of the impact mechanism indicate that uncertainty in China's monetary policy increases the level of corporate risk-taking, reduces the level of financing constraints, and thus increases inefficient investment, overinvestment, and underinvestment. Further studies find that when the largest shareholder holds a greater proportion of shares and the company is state owned, China's monetary policy uncertainty has a less significant positive impact on inefficient investment, overinvestment, and underinvestment.