Electoral Uncertainty and Corporate Investment: Evidence from European Countries

The aim of the paper is to identify whether electoral uncertainty affects corporate investment, which may cause cyclical fluctuations in European countries. More specifically, the paper focuses on the development of a net fixed-asset investment from 2006 to 2015. Electoral uncertainty is associated with the parliamentary election term since this is the most common election type. The paper is focused on 268,000 firms within the secondary sector (NACE Rev. 2 Sections C - F; Amadeus database). The results suggest that electoral uncertainty may have a negative impact on investment in the secondary sector. Comparing individual industries shows that the negative impact may occur in the construction industry, whereas the effect is statistically inconclusive in the case of manufacturing. Considering the size of the enterprises, electoral uncertainty has a greater impact on SMEs, generally in the secondary sector and, more specifically, in construction. Extending the topic of the economic consequences of the political cycle, including the impact of electoral uncertainty on corporate investment across sectors and business sizes, can be considered as the main contribution of the article.