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

Author

Listed:
  • 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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    Keywords

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    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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