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Firm investment steering through state-level policy uncertainty

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  • Alam, Ahmed W.
  • Farjana, Ashupta
  • Houston, Reza

Abstract

Does state-level policy uncertainty (SPU) stifle firm investment? We document fresh evidence of a strong negative association between SPU and firms’ capital spending. This finding remains robust after excluding states with overrepresentation, through alternative measures of investment and SPU, as well as during low- and high-SPU periods. Furthermore, this effect is stronger for firms facing low market competition. Interestingly, however, firms intensifying lobbying efforts can maintain higher investments during policy turmoil. Additional analyses propose that the mitigating role of lobbying may be explained by the lobbying firms’ greater access to debt financing. Using matched samples based on propensity score matching (PSM) estimation ensures the empirical resilience of these findings.

Suggested Citation

  • Alam, Ahmed W. & Farjana, Ashupta & Houston, Reza, 2023. "Firm investment steering through state-level policy uncertainty," Finance Research Letters, Elsevier, vol. 58(PC).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323008425
    DOI: 10.1016/j.frl.2023.104470
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    More about this item

    Keywords

    Firm investment; State-level policy uncertainty; Lobbying; Market competition; Debt financing;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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