Policy Uncertainty and the Dual Role of Corporate Political Strategies
56 Pages Posted: 20 Mar 2017
Date Written: March 17, 2017
Firms use active political strategies not only to mitigate uncertainty emanating from legislative activity, but also to enhance their growth opportunities. We find that the impact of such policy uncertainty on systematic risk (beta) can be hedged away by employing various political strategies involving the presence of former politicians on corporate boards of directors, contributions to political campaigns, and corporate lobbying activities. In addition, we show that active political strategies can boost firms’ growth opportunities; they are associated with greater firm heterogeneity and make real options more value-relevant as potential drivers of competitive advantages in uncertain environments.
Keywords: Policy risk; Political strategies; Political connections; Boards with ex-politicians; Campaign contributions; Lobbying activities
JEL Classification: G1, H1
Suggested Citation: Suggested Citation