Political Uncertainty and Corporate Investment Cycles
BRANDON JULIO and YOUNGSUK YOOK∗
THE JOURNAL OF FINANCE • VOL. LXVII, NO. 1 • FEBRUARY 2012

ABSTRACT
We document cycles in corporate investment corresponding with the timing of national
elections around the world. During election years, firms reduce investment expenditures
by an average of 4.8% relative to nonelection years, controlling for growth
opportunities and economic conditions. Themagnitude of the investment cycles varies
with different country and election characteristics. We investigate several potential
explanations and find evidence supporting the hypothesis that political uncertainty
leads firms to reduce investment expenditures until the electoral uncertainty is resolved.
These findings suggest that political uncertainty is an important channel
through which the political process affects real economic outcomes.