Focus on Research

May 4, 2012 12:09 pm

Something for the weekend

Political uncertainty has a direct impact on corporate investment, according to research by academics from London Business School and Sungkyunkwan University in Korea.

In their paper ‘Political uncertainty and corporate investment cycles’ Brandon Julio, an assistant professor of finance at LBS and Youngsuk Yook an assistant professor of finance at Sungkyunkwan say that even accounting for growth opportunities and economic conditions companies will reduce their investment expenditure by an average of 4.8 per cent during a national election year, compared with non-election years.

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Focus on Research

An election’s outcome is relevant to corporate decisions say the authors because it will have implications for the regulation of industry, taxation and monetary and trade policy.

“If an election can potentially result in a bad outcome from a firm’s perspective, the option value of waiting to invest increases and the firm may rationally delay investment until some or all of the policy uncertainty is resolved,” say the writers.

Consequently, when a national election is pending companies tend to hesitate before committing to build factories or buy equipment when political outcomes are unclear. Politics really does have an impact on the investment decisions of companies say the writers.

In recent years an ageing population, combined with advances in medicine has seen an increased demand for blood donations. But, with fewer than 10 per cent of the population donating blood in the US and Canada and even fewer in developing countries, shortages are the norm. Altruism alone it would seem is not sufficient to ensure that there is enough blood supply.

However, one solution might be to offer incentives such as T shirts or gift cards as a way to motivate people to give blood say researchers.

A study by a trio of academics has found that when a reward is offered to blood donors donations increase by 15 to 20 per cent. The study looked at figures from 14,000 blood drives that involved half a million donations both in the US and from a field experiment. The researchers found that when perks were on offer, such as T shirts, in some neighbourhoods but not in others, blood donors would travel to and give blood in those areas where they would receive an incentive, ignoring those neighbourhoods where no gifts were attached to the donation.

The study ‘Will there be blood? Incentives and displacement effects in pro-social behavior’ was carried out by Nicola Lacetera, an assistant professor of strategic management at the University of Toronto Rotman School of Management with Mario Macis, an assistant professor in the research track at Johns Hopkins University and Robert Slonim of the University of Sydney.

The paper is published in the American Economic Journal: Economic Policy

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