Is Democracy Good for Corporate Investment?

Yan Li, Youan Wang, Zigan Wang, Qie Ellie Yin

Research output: Contribution to conferenceConference paperpeer-review

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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 languageEnglish
Publication statusPublished - Dec 2021
Event34th Australasian Finance and Banking Conference - University of New South Wales, Sydney, Australia
Duration: 15 Dec 202117 Dec 2021


Conference34th Australasian Finance and Banking Conference
Internet address

User-Defined Keywords

  • political system
  • democracy
  • firm investment
  • firm performance


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