Political Uncertainty and Corporate Investment: Evidence from the 2017 Catalonia Referendum

Abstract

We estimate the effect of political uncertainty on corporate investment using the 2017 Catalan independence referendum as a quasi-natural experiment. Applying a doubly robust difference-in-differences design to a large panel of predominantly private Spanish firms for the period 2014-2019, we find that the referendum reduced capital investment by 3.6%, with the effect peaking at 5.3% in the referendum year, but did not affect intangible investment. The decline in capital investment concentrates among firms with more irreversible capital and weaker growth opportunities, consistent with real-options theory. Results are robust to industry composition, geographic spillovers, and a parallel-trends sensitivity analysis.

Keywords: political uncertainty, corporate investment, Catalonia, real options, private firms, difference-in-differences C23

JEL Classification: C23, D72, D80, E22, G32, L25, R58