Foreign Risk - Domestic Problem: Trade, Capital Allocation, and Performance Under Political Uncertainty

46 Pages Posted: 24 Feb 2012 Last revised: 27 Aug 2019

See all articles by Burcin Col

Burcin Col

Pace University-Lubin School of Business

Art Durnev

University of Iowa - Henry B. Tippie College of Business

Alexander Molchanov

Massey University

Date Written: January 30, 2012

Abstract

We argue that international trade is a significant conduit of foreign political uncertainty into U.S. markets. We find that industries that export considerable shares of their output to countries with high political risk or countries that hold national elections in a given year experience lower total factor productivity growth, lower valuation, and worse accounting performance. The key channel of political uncertainty transmission is disruption of investment efficiency. Our results are not driven by economic risk or the quality of institutional environment of trading-partner countries, and they remain robust when we account for potential endogeneity of export flows.

Keywords: Capital Allocation, Political Risk, International Trade

JEL Classification: F10, G32

Suggested Citation

Col, Burcin and Durnev, Artyom and Molchanov, Alexander, Foreign Risk - Domestic Problem: Trade, Capital Allocation, and Performance Under Political Uncertainty (January 30, 2012). Pace University Finance Research Paper No. 2012/04. Available at SSRN: https://ssrn.com/abstract=2009947 or http://dx.doi.org/10.2139/ssrn.2009947

Burcin Col

Pace University-Lubin School of Business ( email )

One Pace Plaza
New York, NY 100038
United States

Artyom Durnev (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States
(514) 398-5394 (Phone)
(514) 398-3876 (Fax)

HOME PAGE: http://www.artdurnev.com

Alexander Molchanov

Massey University ( email )

Auckland
New Zealand

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
54
Abstract Views
760
rank
388,748
PlumX Metrics