Idiosyncratic presidential economic approval and corporate investment

Using the presidential economic approval rating index, the authors construct a measure of public economic sentiment orthogonal to macroeconomic fundamentals. The authors document a significant negative relationship between unexplained sentiment and investment growth, persisting for approximately three years. Horse-race tests confirm the measure captures unique information beyond established sentiment and uncertainty indices. The transmission mechanism operates through growth opportunities and financing: sentiment uncertainty reduces perceived opportunities, diminishing external financing demand and constraining investment, while preserving firms’ responsiveness to fundamentals. Markov switching analysis reveals this effect is most pronounced during high public confidence periods. The relationship is attenuated pre-election when political uncertainty dominates and amplified post-election when firms refocus on economic conditions. Cross-sectionally, effects are weaker for firms with fewer investment frictions or government relationships, but stronger in politically sensitive industries, high litigation sectors and during geopolitical tensions. The findings demonstrate that unexplained public sentiment induces precautionary delays in corporate capital investment.