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Firm-level political risk and equity issuance

Rahman, D., Haque, A., Kabir, M. and Bin Hasan, M. S. (2024) Firm-level political risk and equity issuance. Journal of International Financial Markets, Institutions and Money. ISSN 1042-4431 (In Press)

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We examine whether firm-level political risk influences the issuance of equity (debt) to finance corporate investment. With a sample of 64,693 firm-quarter observations from 2002–2020, we find that firm-level political risk is significantly and positively associated with subsequent equity issuance as opposed to debt issuance. To mitigate endogeneity, we estimate firm fixed-effects regression, perform nearest-neighbor score matching technique and Heckman’s (1979) two-step correction procedure, and employ gubernatorial elections in different states of the U.S. as a shock to the firm-level political risk. We also test for two potential economic mechanisms, financial flexibility and information asymmetry, and find that our baseline results are more pronounced for these channels. Our study presents new evidence on firms’ financing choices in the presence of firm-level political risk.

Item Type:Article
Divisions:Henley Business School > ICMA Centre
ID Code:114693

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