{"title":"Election Uncertainty and Capital Structure","authors":"Bahar Ulupinar, Isa Camyar","doi":"10.2139/ssrn.2154653","DOIUrl":null,"url":null,"abstract":"Given different preference of political parties on macroeconomic issues, elections create a policy uncertainty. We hypothesize that election uncertainty increases cost of equity due to lower investor demand on equity issuances. Using U.S. elections from 1960 to 2010, we show that market leverage and probability to issue leverage are highest in the election year. On the other hand, when the election uncertainty resolves, firms experience a sharp decline in their leverage ratios. This finding suggests that firms rebalance and move their leverage ratios to target leverage. Our results are robust to definition of market and book leverage, S&P credit rating, marginal tax rates, and sub-period analysis","PeriodicalId":47355,"journal":{"name":"Economics Bulletin","volume":null,"pages":null},"PeriodicalIF":0.6000,"publicationDate":"2020-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"1","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Economics Bulletin","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.2154653","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"Economics, Econometrics and Finance","Score":null,"Total":0}
引用次数: 1
Abstract
Given different preference of political parties on macroeconomic issues, elections create a policy uncertainty. We hypothesize that election uncertainty increases cost of equity due to lower investor demand on equity issuances. Using U.S. elections from 1960 to 2010, we show that market leverage and probability to issue leverage are highest in the election year. On the other hand, when the election uncertainty resolves, firms experience a sharp decline in their leverage ratios. This finding suggests that firms rebalance and move their leverage ratios to target leverage. Our results are robust to definition of market and book leverage, S&P credit rating, marginal tax rates, and sub-period analysis
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The Economic Bulletin is an open-access letters journal founded in 2001 with the mission of providing free and extremely rapid scientific communication across the entire community of research economists. EB publishes original notes, comments, and preliminary results. We are especially interested in publishingmanuscripts that keep the profession informed about on-going research programs. Our publication standard is that a manuscript be original, correct and of interest to a specialist. Submissions in these categories are refereed and our objective is to make a decision within two months. Accepted papers are published immediately. It is expected that in many cases, manuscripts published in these categories will form the foundation for more complete works to besubsequently submitted to other journals. In all cases, submissions are restricted to seven printed pages exclusive of references, tables, figures, and appendices, and must be in PDF format. EB also publishes non-refereed letters to the editor, conference announcements and research announcements.
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