Political Uncertainty, Corporate Investment Decision and Firm Performance: Empirical Evidence from Thailand
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Abstract
The objectives of this study are to investigate the impact of political uncertainty on corporate investment decision and on firm performance. We applied the Thai political uncertainty index constructed by Luangaram and Sethapramote (2018) to quantify the political risk. The results revealed that political uncertainty is negatively related to corporate investment level as well as the firm performance. In addition, corporate investment level was positively associated with firm characteristics such as financial constrain measured by operating cash flows, and growth opportunities measured by year-on-year sales growth, and Tobin’s Q. Despite there were negative impacts of macroeconomic factors on corporate investment, the impacts on firm performance were inconclusive. Overall, our results lend empirical support to the hypothesis that political uncertainty can weaken economic growth through a reduction in corporate investment in real sector. Moreover, the political uncertainty has negative impact on firm performance. This decrease is related to precautionary delays in investment until the validity of related policies is implemented. Meanwhile, the political uncertainty also possibly affects the demand for consumption which potentially impact the firm performance.
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