The effect of corporate diversification on corporate investment during economic policy uncertainty: global evidence

Purpose This study explores the interplay between economic policy uncertainty (EPU) and corporate investment, with a focus on how corporate diversification influences this relationship based on a diverse sample of developed and emerging 22 countries firms from year 2000–2020 investment. Design/methodology/approach This study uses the ordinary least square regression method with year, industry, country fixed effect. Also, robustness tests including two stage least square, propensity score matching, subsampling analysis applied to support the main findings. Findings Grounded in the real options perspective and financial constraints theory, the research reveals that diversified firms mitigate the adverse impact of EPU on corporate investment. Empirical findings from a sample of listed firms across 22 countries (2000–2020) demonstrate that, during high EPU, companies generally limit investment, in line with the real options perspective. However, diversified firms show a reduced negative impact highlighting diversification’s moderating role. Notably, sub-sampling analysis indicates that the moderating impact of corporate diversification is more pronounced in developed economies than emerging economies with related diversification measure and vice versa with unrelated diversification measure. Practical implications This research highlights the strategic significance of corporate diversification in alleviating the effects of economic uncertainty, with implications for both developed and emerging economies’ firms’ strategic decision-makers. Originality/value Our study is the first which highlighted the role of corporate diversification between economic policy uncertainty and firm investment based on 22 emerging and developed economies from around the world.