Local Political Uncertainty, Family Control, and Investment Behavior

Estimating difference-in-differences models on a comprehensive data set of Italian companies, we provide novel insights into the literature on political uncertainty and firm investment. We first establish that local political uncertainty leads to declining investment. Next, we show that family control neutralizes this effect: Family firms are more likely than other firms to invest during politically uncertain times, especially when operating in industries dependent on public spending and/or managed by family members. Finally, we document that this investment resilience of family firms under political uncertainty translates into significantly greater profitability and growth.