Political Uncertainty and Firm Investment: Project-Level Evidence from M&A Activity

52 Pages Posted: 11 Jul 2016 Last revised: 30 Aug 2018

See all articles by Zhenhua Chen

Zhenhua Chen

University of San Diego School of Business

Mehmet Cihan

University of Connecticut

Candace Jens

Tulane University - A.B. Freeman School of Business

T. Beau Page

Tulane University - Finance & Economics

Date Written: August 24, 2018

Abstract

We use M&A deal-level data and gubernatorial elections in a difference-in-difference framework to ask whether political uncertainty alters investment decisions by affecting firms or projects. We find approximately 4% fewer acquirer announcements in election states and that acquirers select approximately 5% fewer targets from election states, suggesting political uncertainty affects investment through both fi rm and project channels. Smaller deals and deals by fi nancially constrained firms are most susceptible through the project channel. Establishment of the project channel is important because it is evidence of the costs of political uncertainty crossing state borders, which matters for the management of these costs.

Keywords: investment, political uncertainty, gubernatorial elections, mergers and acquisitions

JEL Classification: G34, G38, H70

Suggested Citation

Chen, Zhenhua and Cihan, Mehmet and Jens, Candace and Page, Beau, Political Uncertainty and Firm Investment: Project-Level Evidence from M&A Activity (August 24, 2018). Available at SSRN: https://ssrn.com/abstract=2807242 or http://dx.doi.org/10.2139/ssrn.2807242

Zhenhua Chen

University of San Diego School of Business ( email )

Olin Hall
5998 Alcalá Park
San Diego, CA
United States

Mehmet Cihan

University of Connecticut ( email )

Storrs, CT 06269-1063
United States

Candace Jens (Contact Author)

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

7 McAlister Drive
New Orleans, LA 70118
United States

Beau Page

Tulane University - Finance & Economics ( email )

A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
United States

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