State-level politics: Do they influence corporate investment decisions?

Motivated by the real options theory, we develop the hypothesis that political outcomes (POs) influence corporate investment (CI). We show that POs influence CI strongly when a sample of all 1331 Australian firms are modelled as a panel. The effect of POs on CI at the Australian state-level is heterogenous with some states more affected than others and with some PO variables more influential than others. We also confirm that when confronted with a large sample of firms, firm characteristics such as political connections, size and capital intensity do matter in terms of whether POs influence CI. •The effect of political outcomes (POs) on corporate investment (CI) at the Australian state-level is heterogenous with some states more affected than others and with some PO variables more influential than others.•Apart from elections, other POs stand out more prominently as determinants of corporate investment.•When confronted with a large sample of firms, firm characteristics such as political connections, size and capital intensity do matter in terms of whether POs influence CI.