The effect of political risk on investment decisions

Pradip Banerjee and Shantanu Dutta

Economics Letters, 2022, vol. 212, issue C

Abstract: The debate on firm’s investment decision under uncertainty is still unsettled. This study empirically examines the impact of firm-level political risk on contemporaneous capital and operating investment decisions. Using the text-based measure of firm-level political risk for US firms developed by Hassan et al. (2019), we show that when firms face higher political risk, they reduce the irreversible capital investment and deploy the surplus funds in more reversible operating activities. Our results are robust to using alternative measures of the outcome variable and to endogeneity concerns.

Keywords: Political risk; Capital investment; Working capital; Uncertainty (search for similar items in EconPapers)
JEL-codes: G30 G31 G32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176522000167
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:212:y:2022:i:c:s0165176522000167

DOI: 10.1016/j.econlet.2022.110301

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().