Firm-level political risk and corporate investment

Wonseok Choi, Chune Young Chung, Kainan Wang

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Article number102307
JournalFinance Research Letters
DOIs
StateAccepted/In press - 2021

Keywords

  • corporate governance
  • corporate investment
  • Firm-level political risk

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