The Effect of Political Uncertainty on Financial Flexibility and Firm Value

21 Pages Posted: 22 May 2020

Date Written: April 26, 2020

Abstract

[enter Abstract Body]Constructing a simple general equilibrium model, I examine the effect of local and international political uncertainty on financial flexibility and firm value. The model predicts that political uncertainty will have a negative effect on both. I then empirically examine the effects of political uncertainty on firms in the BRICs countries. I find that local political uncertainty has negative effects on financial flexibility, but not on firm value, while international political uncertainty has negative and larger effects on both. Part of the reason for this is that financial flexibility and long-term debt acts as a partial hedge to political uncertainty.

Keywords: Political Uncertainty, Value, Firm-Level, Financial Flexibility

JEL Classification: D8, E22, E24, E32, E6, G18, G32, G38, H32

Suggested Citation

Gregory, Richard Paul, The Effect of Political Uncertainty on Financial Flexibility and Firm Value (April 26, 2020). Available at SSRN: https://ssrn.com/abstract=3585726 or http://dx.doi.org/10.2139/ssrn.3585726

Richard Paul Gregory (Contact Author)

East Tennessee State University ( email )

Department of Economics and Finance
Johnson City, TN 37614
United States

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