Abstract
The debate on firm’s investment decision under uncertainty is still unsettled. This study empirically examines the impact of firm-level political risk on contemporaneous capital and operating investment decisions. Using the text-based measure of firm-level political risk for US firms developed by Hassan et al. (2019), we show that when firms face higher political risk, they reduce the irreversible capital investment and deploy the surplus funds in more reversible operating activities. Our results are robust to using alternative measures of the outcome variable and to endogeneity concerns.
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