Firm-level political risk and equity issuance

Dewan Rahman, Anamul Haque, Muhammad Kabir and Shehub Bin Hasan

Journal of International Financial Markets, Institutions and Money, 2024, vol. 91, issue C

Abstract: We examine whether firm-level political risk influences the issuance of equity (debt) to finance corporate investment. With a sample of 64,693 firm-quarter observations from 2002 to 2020, we find that firm-level political risk is significantly and positively associated with subsequent equity issuance as opposed to debt issuance. To mitigate endogeneity, we estimate firm fixed-effects regression, perform nearest-neighbor score matching technique and Heckman’s (1979) two-step correction procedure, and employ gubernatorial elections in different states of the U.S. as a shock to the firm-level political risk. We also test for two potential economic mechanisms, financial flexibility and information asymmetry, and find that our baseline results are more pronounced for these channels. Our study presents new evidence on firms’ financing choices in the presence of firm-level political risk.

Keywords: Firm-level political risk; Capital structure; Equity issuance; Financial flexibility; Information asymmetry (search for similar items in EconPapers)
JEL-codes: D81 G32 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:91:y:2024:i:c:s1042443124000106

DOI: 10.1016/j.intfin.2024.101944

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