Political Polarization and Corporate Investment

91 Pages Posted: 5 Dec 2024

See all articles by Tiecheng Leng

Tiecheng Leng

Harbin Institute of Technology

Julian Atanassov

University of Nebraska

Brandon Julio

Lundquist College of Business, University of Oregon

Date Written: January 1, 2024

Abstract

Using data on roll-call voting patterns of U.S. state legislators from 1993 to 2016, we find a negative relationship between firm investment and state legislative polarization, measured as the ideological distance between the Democratic and Republican party medians. An increase of one standard deviation in the average within-state polarization leads to a 4.5% reduction in firm investment rates, controlling for growth opportunities and economic conditions. In response to heightened political polarization, firms are more likely to move their corporate headquarters to less polarized states. We find that polarized states have lower passing rates for legislative bills and higher volatility in economic policy, suggesting that legislative gridlock and policy instability may be two possible mechanisms through which polarization affects firm decisions. Our paper provides new insights into the real effects of political polarization.

Suggested Citation

Leng, Tiecheng and Atanassov, Julian and Julio, Brandon, Political Polarization and Corporate Investment (January 1, 2024). Available at SSRN: https://ssrn.com/abstract=5037085 or http://dx.doi.org/10.2139/ssrn.5037085

Tiecheng Leng (Contact Author)

Harbin Institute of Technology ( email )

92 West Dazhi Street
Nan Gang District
Harbin, 150001
China

Julian Atanassov

University of Nebraska ( email )

CBA
University of Nebraska, Lincoln
Lincoln, NE 68588
United States

Brandon Julio

Lundquist College of Business, University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

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