Is Democracy Good for Corporate Investment?

  • 殷切, Qie (CoPI)
  • Wang, Zigan (Collaborator)
  • Wang, Youan (Collaborator)
  • Li, Yan (Collaborator)

Project: Research project

Project Details

Description

Using corporate data from 27 countries with democracy status changes between 1982 and 2017, we find that, following democratization, public firm investment decreases while private firm investment increases. The negative democracy-investment relationship for public firms is driven by higher regulatory costs, higher employee expenses, and lower overinvestment. Meanwhile, the reduction in overinvestment inefficiency leads to higher firm value and stock returns in democratic countries. The positive democracy-investment relationship for private firms is driven by lower taxation and lower underinvestment. The public firms' investment reduction disappears after only two years. In sum, democracy affects corporate investment—in a good way.
StatusActive
Effective start/end date1/01/211/01/25

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