Economic Policy Uncertainty and Investor Sentiments: The Moderating Role of Board Independence

The study examines the impact of Economic Policy Uncertainty (EPU) exposure on investor sentiment in the Chinese market by using a dataset of 1049 A-share-listed firms, covering the period from 2014 to 2022. It further assesses the moderating role of board independence on the relationship between EPU exposure and investor sentiment. Using the Fama-French Five-Factor model to measure the EPU exposure index and panel regression techniques, the empirical findings reveal that EPU exposure has a significant negative association with investor sentiment. This implies that firm-level EPU exposure creates an ambiguous environment which severely hampers investor confidence. Furthermore, the moderating analysis shows that firms with high board independence experience a weaker adverse effect of EPU exposure, suggesting the favorable role of board independence during periods of uncertainty. The findings remain consistent while applying various robustness checks. Overall, the study offers important insights for policymakers and practitioners by emphasizing that strengthening board independence can serve as an effective governance tool to mitigate the negative market repercussions of policy uncertainty and enhance investor confidence in uncertain policy regimes.