Review of Financial Studies Vol. 37 No. 10 2024

The Bright Side of Political Uncertainty: The Case of R&D

Julian Atanassov¹; Brandon Julio²; Tiecheng Leng³

¹ University of Nebraska , USA · ² University of Oregon , USA · ³ Harbin Institute of Technology , China

Abstract

We use close gubernatorial elections as a quasi-natural experiment to document a positive effect of political uncertainty on firm-level R&D. This finding is in contrast to the existing literature documenting a negative impact of political uncertainty on capital investment. We examine potential mechanisms and find that our results are consistent with the growth option view of R&D investment. The effect is stronger for politically sensitive and high-tech industries.The results are robust to different proxies for political uncertainty shocks. As predicted by models of investment under uncertainty, the real effects of political uncertainty critically depend on the type of the investment. JEL G18, G38, O31, O32

DOI

10.1093/rfs/hhae023

Volume

37

Issue

10

Pages

2937-2970

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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