Cross-country analysis of the effects of political uncertainty on stock price informativeness

We examine the effects of political uncertainty on the informativeness of stock prices. Using panel data from 49 countries and 441,882 firm-year observations from 2000 to 2020, our results evince several interesting aspects. First, we find that, whereas political uncertainty reduces stock price informativeness in the year prior to elections and during the elections, stock prices tend to be more informative in non-election years. Second, we find that the sensitivity of stock price informativeness to political uncertainty is reduced by the strength of institutional quality. Third, the effects of political uncertainty appear to be heterogeneous across less/unregulated and regulated industries. Lastly, our channel analysis indicates that during the year of elections, firms tend to disclosure less information thereby exerting a negative impact on stock price informativeness. Our results are robust to the system generalized method of moments (SGMM), difference-in-difference, and alternative specifications.