Studying a monthly panel of European listed non-financial firms, we document a negative effect of economic policy uncertainty (EPU) on firm value but a positive effect on the valuation premium of founding family firms. These findings are confirmed in a propensity score–matched sample and remain robust to a battery of tests addressing omitted variable bias and measurement error. The lower EPU-sensitivity of founding family firms is concentrated in politically connected firms operating in low-corruption environments. Additional analyses show that founding family firms' valuation premium is more pronounced for R&D-intensive firms with less diversified and less labor-intensive business models. Overall, our results support the view that founding family firms are more resilient to uncertainty and may contribute to economic stability.

We propose a novel approach to measure the value that shareholders assign to financial flexibility. In contrast to existing proxies for financial constraints, our measure is market-based, forward-looking and not directly influenced by past financial decisions. We find that firms for which shareholders consider financial flexibility more valuable have lower dividend payouts, prefer share repurchases to dividends, and exhibit lower leverage ratios. Moreover, these firms tend to accumulate more cash. Our analysis contributes to the growing literature on financial flexibility and indicates that—in line with prior survey evidence—financial flexibility considerations shape corporate financial policy.