Political Uncertainty and Investment: Causal Evidence from U.S. Gubernatorial Elections

60 Pages Posted: 17 Nov 2012 Last revised: 20 Jan 2016

See all articles by Candace Jens

Candace Jens

Tulane University - A.B. Freeman School of Business

Date Written: January 20, 2016

Abstract

I examine the link between political uncertainty and firm investment using U.S. gubernatorial elections as a source of plausibly exogenous variation in uncertainty. Investment declines 5% before all elections and up to 15% for subsamples of firms particularly susceptible to political uncertainty. I use term limits as an IV for election closeness. Because close elections are related to economic downturns, I find that the effect of close elections on investment is understated by more than half by OLS. Post-election rebounds in investment depend on whether an incumbent is re-elected. Finally, I provide evidence that firms delay SEOs tied to investments during higher uncertainty.

Keywords: investment, political uncertainty, gubernatorial elections

JEL Classification: G38, G32, H70

Suggested Citation

Jens, Candace, Political Uncertainty and Investment: Causal Evidence from U.S. Gubernatorial Elections (January 20, 2016). Available at SSRN: https://ssrn.com/abstract=2176855 or http://dx.doi.org/10.2139/ssrn.2176855

Candace Jens (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

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