The effect of political uncertainty on the cost of corporate debt

Waisman, Maya; Ye, Pengfei; Zhu, Yun

doi:10.1016/j.jfs.2015.01.002

Cited by 192 publications

(117 citation statements)

References 41 publications

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“…In column (2), the dependent variable, Debt_Issue, is defined as bank loan issuance plus corporate debt issuance minus total debt payback in cash flow statements, scaled by total assets. In Previous literature documents that political uncertainty can increase the cost of both equity and debt (Boubakri, Guedhami, Mishra, & Saffar, 2012;Waisman, Ye, & Zhu, 2015), and worsen access to debt financing (Feng et al, 2015). 18 In untabulated tests, I examine the effect of local official turnover on effective tax rates based on the whole sample and find that SOE and POE response to local official turnover varies.…”

Section: Possible Channelsmentioning

confidence: 99%

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Local official turnover, ownership, and firm cash holdings: Insights from an emerging market

2018

Euro Fin Management

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Using a hand‐collected dataset of city‐level local official turnover in China, I find that average cash holdings of listed firms decrease significantly upon turnover of city heads, and this effect concentrates in privately owned enterprises. Such effects are more pronounced in firms located in cities with lower government quality. I also find that local official turnover leads to decreases in equity issuance for privately owned enterprises but not for state‐owned enterprises, which largely explains our primary findings. Overall, this paper reveals that the cash policy of privately owned enterprises is sensitive to local official turnover in an emerging market.

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Section: Possible Channelsmentioning

confidence: 99%

“…Previous literature documents that political uncertainty can increase the cost of both equity and debt (Boubakri, Guedhami, Mishra, & Saffar, ; Waisman, Ye, & Zhu, ), and worsen access to debt financing (Feng et al, ).…”

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confidence: 99%

Local official turnover, ownership, and firm cash holdings: Insights from an emerging market

2018

Euro Fin Management

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“…Other studies, such as Waisman et al . (), Tran and Phan (), and Ben‐Nasr et al . (), investigate the impact of political uncertainty on firms’ financing activities in debt markets.…”

Section: Political Uncertainty and Corporate Policiesmentioning

confidence: 96%

“…The abovementioned studies show that policy uncertainty adversely affects firms’ access to external financing markets, including both the equity market (e.g., Çolak et al ., ) and the debt market (Waisman et al ., ). From a different perspective, two inter‐related studies, Duong et al .…”

Section: Political Uncertainty and Corporate Policiesmentioning

confidence: 97%

“…Waisman et al . () examine the effect of political uncertainty on the cost of corporate debt in the US setting. Using a sample of over 20 000 corporate bond issues over the period 1980–2012, they show that increased political uncertainty leads to higher public debt costs proxied by corporate bond spreads, especially in the years closer to a campaign.…”

Section: Political Uncertainty and Corporate Policiesmentioning

confidence: 99%

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Political Uncertainty and Finance: A Survey

Dai

Zhang

2019

Asia-Pac J of Fin Stud

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An emerging stream of literature investigates the impact of political uncertainty on financial markets. In this survey, we review this line of literature from four perspectives, namely, asset prices, corporate policies, financial intermediaries, and economy and households, suggesting that political uncertainty generally increases market friction and as a result changes corporate behavior and adversely affects the economy. At the end of the survey, we discuss a few future directions worth being explored in view of the relationship between political uncertainty and finance. most likely to occur if the old policy has led to unexpected low realized profitability. Therefore, policy change can increase firms' expected profitability, thereby pushing stock prices up, that is, the cash flow effect. However, due to the new policy's higher uncertainty, policy change can also increase discount rates, thereby pushing stock prices down, that is, the discount rate effect. The authors show analytically that, on average, the discount rate effect will outweigh the cash flow effect and stock prices will fall at the announcement of a government policy change. The reason is that positive announcement returns tend to be small as policy changes that have the potential to push stock prices up are mostly expected by investors. Moreover, as new policies introduce more uncertainty and raise the volatility of the stochastic discount factor, government policy changes will increase stock return volatilities and correlations.Closely related to P astor and Veronesi (2012, 2013) analyze the risk premium induced by political uncertainty. P astor and Veronesi (2013) extend the general equilibrium model developed by P astor and Veronesi (2012) in two key aspects. First, unlike P astor and Veronesi (2012) who assume political cost is unknown to investors, P astor and Veronesi (2013) allow investors to learn about the political costs of the new policies through the stream of political news. Second, P astor and Veronesi (2012) assume that all government policies are identical a priori, whereas P astor and Veronesi (2013) allow the government to choose from a set of heterogeneous policies. The impacts of both, the learning about political costs and policy heterogeneity, are larger in weak economic conditions when a policy change is more likely to happen.Accordingly, in P astor and Veronesi's (2013) analytic model, stock returns are driven by capital shocks, impact shocks, and political shocks, and correspondingly the equity risk premium can be decomposed into three components based on the three types of shocks. As the optimal choice for the government is to change its policy when the old policy is perceived as sufficiently unfavorable, the authors show analytically that the composition of the risk premium varies depending on the economic state. In weak economic conditions when the probability of a policy change is high, the equity risk premium is largely driven by the political risk premium. However, in strong economic conditions when a policy change ...

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Giving too much and paying too little? The effect of corporate social responsibility on corporate lobbying efficacy: Evidence of tax aggressiveness

Lin

2020

Corp Soc Responsibility Env

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Though lobbying accounts for a significant proportion of corporate political expenditure, comprehensive research on its advantages is scarce. Further, research findings have been inconclusive in quantifying political lobbying expenditures' rate of return. Using data from Fortune's America's Most Admired Companies (AMAC) with publicly available financial statements for the period from 2008 to 2017, this study delved into the tax benefits of lobbying using the dynamic panel system GMM and quantile regression model. This study found strong evidence that corporate lobbying is associated with higher levels of tax aggressiveness. The results also show that firms that spend more on lobbying in a given year pay lower effective tax rates. Additionally, this study revealed that the reputational effects of corporate social responsibility lead to the increased effectiveness of corporate lobbying expenditures. Thus, political lobbying affects tax enforcement, resulting in lower tax burdens for politically active firms. These results are consistent with the conjecture that firms with high levels of social responsibility and political lobbying are more tax aggressive. This study has addressed the need to quantify the benefits of lobbying and corporate social responsibility activities, especially in terms of lower tax payments and better financial returns to shareholders while still meeting the needs of non‐owner stakeholders.

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The effect of political uncertainty on the cost of corporate debt

Cited by 192 publications

References 41 publications

Local official turnover, ownership, and firm cash holdings: Insights from an emerging market

Local official turnover, ownership, and firm cash holdings: Insights from an emerging market

Political Uncertainty and Finance: A Survey

Giving too much and paying too little? The effect of corporate social responsibility on corporate lobbying efficacy: Evidence of tax aggressiveness

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