Abstract
Using corporate data in 39 countries that experienced democracy status changes between 1982 and 2017, we find that firm investment significantly decreases following democratization. This negative democracy-investment relationship is driven by higher regulatory costs, higher employee expenses, and lower inefficient investment. The positive influence of reduced investment inefficiency dominates and leads to higher firm value and stock return in democratic countries. The effect is stronger for politically connected firms, for financially unconstrained firms, and in less corrupted countries. The investment reduction disappears after only two years. In sum, democracy reduces corporate investment – in a good way.
| Original language | English |
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| Publication status | Published - Dec 2021 |
| Event | 34th Australasian Finance and Banking Conference - University of New South Wales, Sydney, Australia Duration: 15 Dec 2021 → 17 Dec 2021 https://www.unsw.edu.au/business/our-schools/banking-finance/news-events/australasian-finance-banking-conference/34th-australasian-finance-and-banking-conference |
Conference
| Conference | 34th Australasian Finance and Banking Conference |
|---|---|
| Country/Territory | Australia |
| City | Sydney |
| Period | 15/12/21 → 17/12/21 |
| Internet address |
User-Defined Keywords
- political system
- democracy
- firm investment
- firm performance