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Geopolitical risk and corporate investment: How do politically connected firms respond?

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  • Alam, Ahmed W.
  • Houston, Reza
  • Farjana, Ashupta

Abstract

This letter reveals how political connection affects the relationship between geopolitical risk (GPR) and corporate investment. Using a large sample of U.S. firms from 1996 to 2018, we examine if political connection moderates the negative effect of GPR on corporate investments. Our analysis finds that politically connected firms can mitigate this negative relationship. Firms that make political action committee (PAC) contributions and lobby members of Congress invest more than their non-politically connected competitors. These results remain valid through a combination of robustness analyses.

Suggested Citation

  • Alam, Ahmed W. & Houston, Reza & Farjana, Ashupta, 2023. "Geopolitical risk and corporate investment: How do politically connected firms respond?," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s1544612323000557
    DOI: 10.1016/j.frl.2023.103681
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    Cited by:

    1. Nader Naifar & Shumokh Aljarba, 2023. "Does Geopolitical Risk Matter for Sovereign Credit Risk? Fresh Evidence from Nonlinear Analysis," JRFM, MDPI, vol. 16(3), pages 1-17, February.

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    More about this item

    Keywords

    Geopolitical risk; Corporate investment; Political connection; PAC contribution; Lobbying expenditure;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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