Local Political Uncertainty, Family Control and Investment Behavior
Journal of Financial & Quantitative Analysis, forthcoming
47 Pages Posted: 28 Nov 2016 Last revised: 5 Oct 2020
Date Written: May 4, 2017
Estimating difference-in-differences models on a comprehensive dataset of Italian companies, we provide novel insights into the literature on political uncertainty and firm investment. We first establish that local political uncertainty leads to declining investment. Next, we show that family control neutralizes this effect: family firms are more likely than other firms to invest during politically uncertain times, especially when operating in industries dependent on public spending and/or managed by family members. Finally, we document that this investment resilience of family firms under political uncertainty translates into significantly greater profitability and growth.
Keywords: family firms, political uncertainty, election, local politics
JEL Classification: D72, G31, H70, R50
Suggested Citation: Suggested Citation