Stock liquidity and firm-level political risk

Kuntal Das and Mona Yaghoubi

Finance Research Letters, 2023, vol. 51, issue C

Abstract: Exploiting a novel measure of firm-level political risk based on earnings conference calls, we examine the effect of firm-level political risk on stock liquidity. We show that liquidity decreases significantly more in firms that are exposed to political risk. An increase in firm-level political risk by one standard deviation lowers liquidity by around 3.64%. We further investigate whether the effect of firm-level political risk on stock liquidity can be mitigated or exacerbated by the political environment of the U.S. economy and find some evidence of the Democratic liquidity premium. Our results are robust to alternative measures of (il)liquidity, and an estimation method.

Keywords: Stock liquidity; Political risk (search for similar items in EconPapers)
JEL-codes: G11 G14 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (9)

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Working Paper: Stock Liquidity and Firm-Level Political Risk (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005967

DOI: 10.1016/j.frl.2022.103419

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