Safeguarding Against Populist Expropriation Risk: Firm-level Evidence
53 Pages Posted: 20 Dec 2023
Date Written: June 29, 2023
This study explores whether firms adjust their liquidity in response to heightened uncertainty and expropriation risk associated with populism. Using an event study approach, we consistently find that firms reduce their cash holdings during periods of populism, supporting the expropriation hypothesis. Smaller firms, innovating firms, and firms that operating in politically sensitive industries experience larger reductions in cash holdings. Moreover, we find that right-wing populism has a more pronounced impact on corporate liquidity. Consistent with main story, firms increase leverage, distribute more to shareholders, and transfer their assets to overseas in response to populists in power. Firms also increase cash holdings following the departure of populists from office.
Keywords: expropriation, populism, cash holdings, liquid assets, corruption, nationalisation
JEL Classification: D72, D73, G32, G38
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