Terrorist Attacks, Managerial Sentiment, and Corporate Policies

This paper examines whether extreme negative events such as terrorist attacks and mass shootings affect the sentiment of managers and consequently affect corporate policies. Specifically, we conjecture that terrorist events invoke negative sentiment among local corporate managers, which would induce them to adopt more conservative corporate policies. Consistent with our conjecture, we find that firms located near extreme negative events increase cash holdings, and reduce R&D expenditure as well as long-term leverage. These effects are temporary and they become weaker as the firm-event distance increases. Further, firms managed by younger CEOs exhibit a greater sensitivity to the events. We also find that salient events with greater media coverage induce larger shifts in corporate policies.