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Firm-level political risk and corporate investment

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  • Choi, Wonseok
  • Chung, Chune Young
  • Wang, Kainan

Abstract

Extant literature shows that firms reduce their capital investment in response to political risk. We examine firm-level activities and characteristics that mitigate the impact of political risk on firm investment. First, we empirically investigate the relationship between firm-level political risk and future investment, showing that firms with higher political exposure and political risk spend less on capital investment. Next, we examine the mechanisms behind the negative relationship between firm-level political risk and corporate investment. We find that political lobbying effectively reduces the negative impact of political exposure and political risk on corporate investment. In addition to corroborating the key findings documented in the literature that firms react to political risk by cutting investment, we show that this relationship is affected by certain firm activities and characteristics.

Suggested Citation

  • Choi, Wonseok & Chung, Chune Young & Wang, Kainan, 2022. "Firm-level political risk and corporate investment," Finance Research Letters, Elsevier, vol. 46(PA).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pa:s154461232100338x
    DOI: 10.1016/j.frl.2021.102307
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    Cited by:

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    2. Das, Kuntal K. & Yaghoubi, Mona, 2023. "Stock liquidity and firm-level political risk," Finance Research Letters, Elsevier, vol. 51(C).
    3. Klayme, Tania & Gokmenoglu, Korhan K. & Rustamov, Bezhan, 2023. "Economic policy uncertainty, COVID-19 and corporate investment: Evidence from the gold mining industry," Resources Policy, Elsevier, vol. 85(PA).
    4. Wang, Liang, 2023. "Mitigating firm-level political risk in China: The role of multiple large shareholders," Economics Letters, Elsevier, vol. 222(C).

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    More about this item

    Keywords

    Firm-level political risk; corporate investment; corporate governance;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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