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Politically Connected Boards and Corporate Investment Under Policy Uncertainty

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Title:Politically Connected Boards and Corporate Investment Under Policy Uncertainty
Authors:Demian Berchtold
Blake Bowler
Zhe Li
Jiri Tresl
Keywords:Political Uncertainty
Corporate Governance
Board Of Directors
Political Connections
Network Effects
show 1 moreCorporate Investment
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Date Issued:05 Aug 2020
Abstract:Motivated by recent increases in political uncertainty, this paper considers how politically connected (PC) board members affect how firms respond to policy uncertainty. Prior research shows policy uncertainty results in a decline of corporate investment. We find these declines attenuate 71 to 73 percent when companies have PC board members. Cross-sectional tests indicate the strongest results when boards have more PC directors, when boards have a greater expected involvement in investment decisions, and when boards have political connections at the highest executive level (i.e. presidential committees). Using the creation of the President's Management Advisory Board (PMAB) to conduct a quasi-natural experiment, we find firms with boards that become PC due to the creation of the PMAB are less likely to reduce corporate investment in response to political uncertainty. Our findings contribute to the literature on corporate governance, political networks, and policy uncertainty.
Appears in Collections: 11 Financial Accounting 4: Accounting Issues Related to Labor, Politics, and Environments

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