Firm investment steering through state-level policy uncertainty

Ahmed W. Alam, Ashupta Farjana and Reza Houston

Finance Research Letters, 2023, vol. 58, issue PC

Abstract: Does state-level policy uncertainty (SPU) stifle firm investment? We document fresh evidence of a strong negative association between SPU and firms’ capital spending. This finding remains robust after excluding states with overrepresentation, through alternative measures of investment and SPU, as well as during low- and high-SPU periods. Furthermore, this effect is stronger for firms facing low market competition. Interestingly, however, firms intensifying lobbying efforts can maintain higher investments during policy turmoil. Additional analyses propose that the mitigating role of lobbying may be explained by the lobbying firms’ greater access to debt financing. Using matched samples based on propensity score matching (PSM) estimation ensures the empirical resilience of these findings.

Keywords: Firm investment; State-level policy uncertainty; Lobbying; Market competition; Debt financing (search for similar items in EconPapers)
JEL-codes: D72 D80 G30 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323008425

DOI: 10.1016/j.frl.2023.104470

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