Abstract
Prior research shows that political uncertainty affects general economic and firm-related outcomes. However, little is known about how firm-specific political uncertainty is related to corporate risk-taking. Taking advantage of a recent construct and using a large sample of non-financial U.S. firms covering the period between 2002 and 2021, we find compelling evidence that firm-specific political uncertainty is positively related to corporate risk-taking, especially for larger firms. On average, a one standard deviation rise in the level of political risk at the firm-level results in a 2.53% increase in risk-taking. Further analysis shows that the impact of firm-level political uncertainty on corporate risk-taking is more pronounced for firms that spend more on corporate lobbying. Our results are significant and robust to alternative risk-taking measures and endogeneity tests.
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