TY - JOUR
T1 - Mitigating political uncertainty
AU - Wellman, Laura A.
N1 - Funding Information:
This paper is based on my dissertation. I would like to thank Dan Dhaliwal (co-chair), Stephen Hillegeist (co-chair), and my dissertation committee members Jennifer Brown, Amy Hillman, Michael Mikhail, and Beverly Walther for their direction, dedication, and invaluable advice. I appreciate the helpful comments and suggestions from an anonymous reviewer, Russel Lundholm (editor), John Barrick (discussant), Phil Berger, Brian Cadman, Hans Christensen, Dhammika Dharmapala, Atif Ellahie, Mara Faccio, Dave Guenther, Michelle Hanlon, Rachel Hayes, Christian Leuz, Michal Matejka, Marlene Plumlee, Katherine Schipper, Jordan Schoenfeld, Nemit Shroff, Doug Skinner, Steve Stubben, the University of Arizona Tax Readings Group, and participants at Arizona State University, Boston College, Duke University, Massachusetts Institute of Technology, Northwestern University, University of Chicago, University of North Carolina, University of Utah, and the 2015 NTA Annual Meeting on Taxation for their helpful suggestions. I appreciate the financial support of the David Eccles School of Business, University of Utah, the Kellogg School of Management, Northwestern University, the University of Illinois at Chicago, and the W.P. Carey School of Business, Arizona State University.
Publisher Copyright:
© 2016, Springer Science+Business Media New York.
PY - 2017/3/1
Y1 - 2017/3/1
N2 - This study examines whether firms that establish political connections gain differential access to relevant information over legislative developments, thereby mitigating the negative consequences of uncertainty. I find that political connections (partially) offset the negative relation between investment and political uncertainty documented in prior research. My results do not appear to be driven by connected firms pursuing investments that are insensitive to uncertainty. I perform additional tests to address concerns over correlated omitted variables. First, I identify a setting around a tax policy development designed to provide new investment incentives to firms. In this setting, I predict and find that reduced information asymmetry for connected firms results in delaying investment in anticipation of future lucrative tax incentives. Second, I perform a falsification test and document that political connections do not mitigate the effects of general economic uncertainty. Finally, I continue to find support for my hypothesis within a propensity matched sample.
AB - This study examines whether firms that establish political connections gain differential access to relevant information over legislative developments, thereby mitigating the negative consequences of uncertainty. I find that political connections (partially) offset the negative relation between investment and political uncertainty documented in prior research. My results do not appear to be driven by connected firms pursuing investments that are insensitive to uncertainty. I perform additional tests to address concerns over correlated omitted variables. First, I identify a setting around a tax policy development designed to provide new investment incentives to firms. In this setting, I predict and find that reduced information asymmetry for connected firms results in delaying investment in anticipation of future lucrative tax incentives. Second, I perform a falsification test and document that political connections do not mitigate the effects of general economic uncertainty. Finally, I continue to find support for my hypothesis within a propensity matched sample.
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U2 - 10.1007/s11142-016-9380-0
DO - 10.1007/s11142-016-9380-0
M3 - Article
AN - SCOPUS:85000963070
SN - 1380-6653
VL - 22
SP - 217
EP - 250
JO - Review of Accounting Studies
JF - Review of Accounting Studies
IS - 1
ER -