Proceedings of 32nd International Business Research Conference
23 - 25 November, 2015, Rendezvous Hotel, Melbourne, Australia
ISBN: 978-1-922069-89-4
Isaac Marcelin, 1 Sheryl-Ann K. Stephen, 2,* and Fassil Fanta, 3
Abstract
This study looks at the patterns of firms’ investment spending around national elections from 1990 through 2011 using a sample of firms from 49 countries. Results indicate that, on average, firms reduce real investment expenditures by 5.72% in presidential election years compared to off presidential elections year s. Conversely, firms’ average investment expenditures increase by 2.34% in legislative election years. The study also finds that irreversible investments are less sensitive to electoral shocks. Specifically, capital and intangible intensive firms appear to have less latitude in delaying investments during presidential election years.
Investments are resumed in post-election years, or when the electoral uncertainty has been dissipated. Overall, the findings suggest that political uncertainty induced by electoral uncertainty has important economic implications. However, markets appear to perceive presidential elections as more likely to lead to policy reversals.
JEL Classification: D92, E22, G11, O16, P16, P26
Keywords: Political economy, electoral uncertainty, investment, capital intensity, intangible intensity
Field of Research: Finance
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1 School of Business, Management and Technology, University of Maryland Eastern Shore, Princess Anne,
MD 21853, USA; T: 410 651 7884; F: 410 651 6032; E: imarcelin@umes.edu
; 2,a Corresponding author:
College of Business, Butler University, Indianapolis, IN 46208; T: 317 940 9855; E: skstephen@butler.edu
;
3 University of Wisconsin, Stout, 712 Broadway St, S Menomonie, WI 54751; T: 715 232 5437;
E: fantaf@uwstout.edu
.
Acknowledgements: We would like to extend our sincere thanks to Dr. Mussie Tecklezion for his initial work with the original dataset.