Abstract: Current literature on different cost of debt across ownerships focuses policy burden and special connection between government and SOE as the primary reason. This paper uses policy uncertainty as a new angle to explain the differences between the costs of debts. Our study uses EPU data to measure the policy uncertainty level and fixed effect model to control both time and individual effects. Our result suggests policy uncertainty is a main contributor to different cost of debt between SOE and private firm, as policy uncertainty increases, the difference enlarges, and SOE have significantly lower cost than private firms. In addition, the development of financial market can narrow the gap. Our finding adds new angle and empirical evidence to study cost of debt and policy uncertainty.

Key words: policy uncertainty, financing cost, financial marketization