Political uncertainty and corporate investment: Evidence from India

Abstract

This article examines the relationship between political uncertainty and corporate investments in India. Using the data of 771 non‐financial Indian firms for the period 2007 Q1 to 2020 Q4 and for three general elections, 2009, 2014, and 2019, the study confirms a significant negative impact of political uncertainty on corporate investments and a pronounced impact of political uncertainty on corporate investment in closely contested elections. Also, we find that corporate investment tends to rise post‐election. Additionally, we find that the negative relationship between political uncertainty and corporate investment is more pronounced for politically sensitive industries and firms facing higher financial constraints.