Firm-level political risk and corporate investment

Date
2022
Authors
Choi, Wonseok
Chung, Chune Young
Wang, Kainan
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract

Extant literature shows that firms reduce their capital investment in response to political risk. We examine firm-level activities and characteristics that mitigate the impact of political risk on firm investment. First, we empirically investigate the relationship between firm-level political risk and future investment, showing that firms with higher political exposure and political risk spend less on capital investment. Next, we examine the mechanisms behind the negative relationship between firm-level political risk and corporate investment. We find that political lobbying effectively reduces the negative impact of political exposure and political risk on corporate investment. In addition to corroborating the key findings documented in the literature that firms react to political risk by cutting investment, we show that this relationship is affected by certain firm activities and characteristics.

Description
Post-print under embargo until May 2024
Article originally published in Finance Research Letters, 46, 102307. English. Published online 2022. ttps://doi.org/10.1016/j.frl.2021.102307
Keywords
Firm-level political risk, Corporate investment, Corporate governance
Citation
This is a post-print version of an article that is available at https://doi.org/10.1016/j.frl.2021.102307. Recommended citation: Choi, W., Chung, C. Y., & Wang, K. (2022). Firm-level political risk and corporate investment. Finance Research Letters, 46, 102307. This item has been deposited in accordance with publisher copyright and licensing terms and with the author’s permission.