ELECTORAL UNCERTAINTY, MACRO -ECONOMIC ENVIRONMENT AND CORPORATE INVESTMENT STRATEGY
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Date
2019
Journal Title
Journal ISSN
Volume Title
Publisher
University of Oum El Bouaghi
Abstract
Our study looks at the relationship between firm’s investment spending in
fixed and intangible assets and electoral uncertainty around two types of
national elections: presidential and parliamentary elections. We analyze
investment sensitivity to electoral uncertainty from 1996 through 2017
using a sample of 1485 firms from 45 countries. We find that, regardless
election type, firm’s fixed investment significantly decrease around
elections. Precisely, firms hold investment spending in before elections
and restart the year following year. In this case, firms adopt a wait-andsee
strategy. But, in the context of corruption control the potential
negative effects are reduced. We thus highlight how different types of
investments respond to various electoral shocks since microeconomic
processes respond to policy uncertainty based upon firm’s resource needs.
We conclude that the effect of political uncertainty on business investment
depend on the degree of political uncertainty and the investment to be
undertaken.
Description
Keywords
Political economy, Policy uncertainty, Electoral uncertainty, business investment