Political Uncertainty and Corporate Investment Cycles
BRANDON JULIO and YOUNGSUK YOOK
November 5, 2010
Journal of Finance  
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 non-election years, controlling for growth
opportunities and economic conditions. The magnitude 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.