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Exporting Uncertainty: The Impact of Brexit on Corporate America

Published online by Cambridge University Press:  19 April 2022

Murillo Campello ,
Gustavo S. Cortes ,
Fabrício d’Almeida  and
Gaurav Kankanhalli
Murillo Campello*
Affiliation:
Cornell University SC Johnson Graduate School of Management and NBER
Gustavo S. Cortes
Affiliation:
University of Florida Warrington College of Business gustavo.cortes@warrington.ufl.edu
Fabrício d’Almeida
Affiliation:
Purdue University Krannert School of Management fdalmeid@purdue.edu
Gaurav Kankanhalli
Affiliation:
University of Pittsburgh Katz Graduate School of Business gkankanhalli@katz.pitt.edu
*
campello@cornell.edu (corresponding author)
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Abstract

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We show that the 2016 Brexit Referendum had multifaceted consequences for corporate America, shaping employment, investment, divestitures, R&D, and savings. The unexpected vote outcome led U.S. firms to cut jobs and investment within U.S. borders. Using establishment-level data, we document that these effects were modulated by the reversibility of capital and labor. American-based job destruction was particularly pronounced in industries with less skilled and more unionized workers. U.K.-exposed firms with less redeployable capital and high input-offshoring dependence cut investment the most. Data on the near universe of U.S. establishments also point to measurable, negative effects on establishment turnover (openings and closings). Our results demonstrate how foreign-born political uncertainty is transmitted across international borders, shaping domestic capital formation and labor allocation.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 8 , December 2022 , pp. 3178 - 3222
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee and Jarrad Harford (the editor) for insightful suggestions. We are also grateful to Warren Bailey, Craig Brown, Charles Calomiris, Danilo Cascaldi-Garcia, Steven Davis, Price Fishback, Janet Gao, Jesús Gorrín, John Graham, Darien Huang, Tim Johnson, Hyunseob Kim, Mauricio Larrain, Angie Low, Pradeep Muthukrishnan, Diogo Palhares, Minchul Shin, Felipe Silva, Allan Timmermann, and seminar participants at the Bank of Portugal, Bristol Workshop on Banking, Cambridge University, George Washington University, Hoover Institution, KU Leuven, LUBRAFIN Conference, Manchester Business School, National Bank of Belgium, Penn State, SFS Cavalcade, Syracuse University, University of Connecticut, University of Georgia, University of Illinois, University of Kentucky, Warwick Business School, and Washington University St. Louis for many useful comments. We also thank the Business Dynamics Research Consortium for providing the Your-Economy Time-Series establishment data.

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