Political Uncertainty and Cost Stickiness: Evidence from National Elections around the World

Posted: 12 Jul 2019

See all articles by Woo-Jong Lee

Woo-Jong Lee

Seoul National University

Jeffrey Pittman

Memorial University ; Virginia Tech

Walid Saffar

Hong Kong Polytechnic University - School of Accounting and Finance

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Date Written: June 18, 2019

Abstract

By analyzing a large panel of elections in 55 countries, we show that political uncertainty surrounding elections can affect asymmetric cost responses to activity changes (i.e., cost stickiness). In comparison to non-election years, we find that the asymmetry in cost behaviors is stronger during election years in regressions that control for other firm-level and country-level determinants. In another series of tests, we report strong, robust evidence supporting the predictions that the importance of political uncertainty to cost stickiness is concentrated in countries with sound political and legal institutions. Collectively, the results imply that managers retain slack resources when political uncertainty is high but to be resolved soon.

Keywords: Political Uncertainty, Cost Stickiness, national elections, institutional infrastructure

Suggested Citation

Lee, Woo-Jong and Pittman, Jeffrey A. and Saffar, Walid, Political Uncertainty and Cost Stickiness: Evidence from National Elections around the World (June 18, 2019). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3418509

Woo-Jong Lee

Seoul National University ( email )

Gwanak-ro 1, Gwanak-gu
Seoul, 08826
Korea, Republic of (South Korea)

Jeffrey A. Pittman (Contact Author)

Memorial University ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Virginia Tech ( email )

United States

Walid Saffar

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Li Ka Shing Tower
Hong Hum
Kowloon
Hong Kong

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