Political Uncertainty and Cost Stickiness: Evidence from National Elections around the World

48 Pages Posted: 20 Apr 2015 Last revised: 16 Mar 2016

See all articles by Woo-Jong Lee

Woo-Jong Lee

Seoul National University

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Walid Saffar

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: March 15, 2016

Abstract

In analyzing a large panel of elections in 56 countries for the period 1989-2012, we show that political uncertainty surrounding elections can affect asymmetric cost behaviors to activity changes (i.e., cost stickiness). The asymmetry in cost behaviors is stronger during election years than in the non-election years, even after controlling for other firm-level and country-level determinants. In another series of tests, we report strong, robust evidence supporting the predictions that the importance of political uncertainty to cost stickiness is concentrated in countries with sound political, legal, and disclosure institutions and countries having populations known to exhibit low uncertainty avoidance. The results are consistent with the view that managers retain slack resources when political uncertainty is high but to be resolved soon.

Keywords: Political Uncertainty, Cost Stickiness

JEL Classification: M41, D24

Suggested Citation

Lee, Woo-Jong and Pittman, Jeffrey A. and Saffar, Walid, Political Uncertainty and Cost Stickiness: Evidence from National Elections around the World (March 15, 2016). Available at SSRN: https://ssrn.com/abstract=2596506 or http://dx.doi.org/10.2139/ssrn.2596506

Woo-Jong Lee

Seoul National University ( email )

Gwanak-ro 1, Gwanak-gu
Seoul, 151-916
Korea, Republic of (South Korea)

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Walid Saffar (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Li Ka Shing Tower
Hong Hum
Kowloon
Hong Kong

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