Political uncertainty and investment: Causal evidence from U.S. gubernatorial elections

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382 Scopus citations


I examine the link between political uncertainty and firm investment using U.S. gubernatorial elections as a source of plausibly exogenous variation in uncertainty. Investment declines 5% before all elections and up to 15% for subsamples of firms particularly susceptible to political uncertainty. I use term limits as an instrumental variable (IV) for election closeness. Because close elections are related to economic downturns, I find that the effect of close elections on investment is understated by more than half by ordinary least squares (OLS). Post-election rebounds in investment depend on whether an incumbent is re-elected. Finally, I provide evidence that firms delay equity and debt issuances tied to investments before elections.

Original languageEnglish (US)
Pages (from-to)563-579
Number of pages17
JournalJournal of Financial Economics
Issue number3
StatePublished - Jun 2017
Externally publishedYes


  • Gubernatorial elections
  • Investment
  • Political uncertainty

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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