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153323 https://hdl.handle.net/2286/R.I.27564 http://rightsstatements.org/vocab/InC/1.0/ All Rights Reserved 2014 viii, 77 p. : ill Doctoral Dissertation Academic theses Text eng Wellman, Laura Dhaliwal, Dan Hillegeist, Stephen Walther, Beverly Mikhail, Mike Hillman, Amy Brown, Jenny Arizona State University Partial requirement for: Ph.D., Arizona State University, 2014 Includes bibliographical references (p. 42-46) Field of study: Accountancy In this study, I test whether firms reduce the information asymmetry stemming from the political process by investing in political connections. I expect that connected firms enjoy differential access to relevant political information, and use this information to mitigate the negative consequences of political uncertainty. I investigate this construct in the context of firm-specific investment, where prior literature has documented a negative relation between investment and uncertainty. Specifically, I regress firm investment levels on the interaction of time-varying political uncertainty and the degree of a firm's political connectedness, controlling for determinants of investment, political participation, general macroeconomic conditions, and firm and time-period fixed effects. Consistent with prior work, I first document that firm-specific investment levels are significantly lower during periods of increased uncertainty, defined as the year leading up to a national election. I then assess the extent that political connections offset the negative effect of political uncertainty. Consistent with my hypothesis, I document the mitigating effect of political connections on the negative relation between investment levels and political uncertainty. These findings are robust to controls for alternative explanations related to the pre-electoral manipulation hypothesis and industry-level political participation. These findings are also robust to alternative specifications designed to address the possibility that time-invariant firm characteristics are driving the observed results. I also examine whether investors consider time-varying political uncertainty and the mitigating effect of political connections when capitalizing current earnings news. I find support that the earnings-response coefficient is lower during periods of increased uncertainty. However, I do not find evidence that investors incorporate the value relevant information in political connections as a mitigating factor. Accounting Political Science Investment Political Connections Political Uncertainty Business and politics Investments Uncertainty--Political aspects. uncertainty The role of political connections in mitigating policy uncertainty: evidence from firm-specific investment