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Institutional Investor Protection and Political Uncertainty: Evidence from Cycles of Investment and Elections

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Institutional Investor Protection and Political Uncertainty: Evidence from Cycles of Investment and Elections

Liu, Tingting (2010) Institutional Investor Protection and Political Uncertainty: Evidence from Cycles of Investment and Elections. Masters thesis, Concordia University.

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Abstract

Previous literature shows that political uncertainty surrounding elections affects corporate investment decisions. Considering the impact of legal institutions that protect investors, we conjecture that well-functioning institutional investor protection would help smooth the negative impact of political uncertainty on corporate investments. In doing so, we collected a sample in 40 countries from 1981 to 2009. We find that firms reduce investment expenditures in election years, but increase investment expenditures in the following years controlling for firm characteristics and economic conditions. This finding suggests that political uncertainty generates cycles in investment expenditures in election years, which is consistent with previous studies. Moreover, we find that there is a positive relationship between legal investor protection and investment expenditures. In addition, the interaction of legal investor protection and the election dummy is significantly positively related to firms’ investments, suggesting that legal investor protection helps smooth the negative effect of political uncertainty on corporate investments during election years. Our results are robust to alternative measures. We also find that corporate investments positively related to cash flows, profitability, growth opportunities, and the overall economic development of a country.

Divisions:Concordia University > John Molson School of Business > Finance
Item Type:Thesis (Masters)
Authors:Liu, Tingting
Institution:Concordia University
Degree Name:M. Sc.
Program:Administration (Finance option)
Date:December 2010
Thesis Supervisor(s):Qi, Yaxuan
ID Code:7049
Deposited By:TING TING LIU
Deposited On:13 Jun 2011 09:05
Last Modified:13 Jun 2011 09:05
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