Political Conflict and Corporate Policies: Evidence from the Basque Country

François Derrien, Stavriana Hadjigavriel, Jose M. Martin-Flores and Arthur Romec
Additional contact information
François Derrien: HEC Paris - Finance Department
Stavriana Hadjigavriel: CUNEF University
Jose M. Martin-Flores: CUNEF University
Arthur Romec: Toulouse Business School

No 1600, HEC Research Papers Series from HEC Paris

Abstract: This paper examines how political conflict affects corporate policies focusing on the Spanish Basque Country. We exploit the announcement by the Basque nationalist terrorist group ETA of the definitive cessation of its armed and extortion activities as an exogenous shock to the exposure of firms in the Basque Country and Navarre to extortion risk. We find that, following the announcement, firms in these regions significantly increase their cash holdings and exhibit higher cash flow sensitivity of cash. They also reduce investment in fixed assets and rely less on short-term debt, consistent with a shift away from strategic liquidity minimization under extortion risk. Finally, firm performance improves. Overall, the results suggest that political conflict distorts cash management, financing choices, and investment decisions.

Keywords: Cash holdings; Political conflict; Revolutionary tax; Corporate policies (search for similar items in EconPapers)
JEL-codes: G12 G30 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2025-12-01, Revised 2025-12-18
References: Add references at CitEc
Citations:

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5838642 Full text (text/html)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

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:ebg:heccah:1600

DOI: 10.2139/ssrn.5838642

Access Statistics for this paper

More papers in HEC Research Papers Series from HEC Paris HEC Paris, 1 Rue de la Libération, 78350 Jouy-en-Josas, France. Contact information at EDIRC.
Bibliographic data for series maintained by Antoine Haldemann ( this e-mail address is bad, please contact ).