Political Uncertainty and Corporate Investment Cycles

55 Pages Posted: 25 Feb 2009 Last revised: 16 Nov 2010

See all articles by Brandon Julio

Brandon Julio

Lundquist College of Business, University of Oregon

Youngsuk Yook

Board of Governors of the Federal Reserve System

Date Written: November 5, 2010

Abstract

We document cycles in corporate investment corresponding with the timing of national elections around the world. During election years, firms reduce investment expenditures by an average of 4.8% relative to non-election years, controlling for growth opportunities and economic conditions. The magnitude of the investment cycles varies with different country and election characteristics. We investigate several potential explanations and find evidence supporting the hypothesis that political uncertainty leads firms to reduce investment expenditures until the electoral uncertainty is resolved. These findings suggest that political uncertainty is an important channel through which the political process affects real economic outcomes.

Keywords: Corporate Investment, Political Uncertainty

JEL Classification: G31, G38

Suggested Citation

Julio, Brandon and Yook, Youngsuk, Political Uncertainty and Corporate Investment Cycles (November 5, 2010). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1349267 or http://dx.doi.org/10.2139/ssrn.1349267

Brandon Julio

Lundquist College of Business, University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Youngsuk Yook (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-475-6324 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
943
Abstract Views
5,819
rank
23,207
PlumX Metrics