Political instability and green investment: evidence from firm-level perceptions

Purpose This paper aims to examine how firms adjust green investment in response to perceived political instability. Design/methodology/approach The study exploits firms’ subjective assessments of political instability to examine whether perceived political instability influences green investment behavior. Firm-level data is from the Business Environment and Enterprise Performance Survey covering 41 economics. Findings The empirical results show that firms that perceived political instability as an obstacle are more likely to engage in green investment activities. The subsample analysis reveals that this positive association is present only among financially unconstrained firms and firms with political connections. Mechanism tests show that firms perceiving political instability anticipate stricter environmental regulations, and that green investment buffers firm performance against the adverse effects of political instability. Originality/value These findings suggest that green investment may represent a strategic response to political risk rather than a purely cost-driven investment.