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Executive Partisanship and Corporate Investment

Published online by Cambridge University Press:  25 April 2023

Anthony B. Rice Open the ORCID record for Anthony B. Rice [Opens in a new window]
Anthony B. Rice*
Affiliation:
The Chinese University of Hong Kong CUHK Business School
*
anthonyb.rice@cuhk.edu.hk
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Abstract

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I show that an alignment in partisan affiliation, between a firm’s management and the president, is associated with higher levels of investment. Using insider trading data, I find that managers become more optimistic about their companies’ prospects when their preferred party is in power. This optimism-driven increase in investment is amplified by herding and associated with both lower profitability and stock returns. Overall, managers’ political beliefs produce heterogeneous expectations about future cash flows and distort investment decisions.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 30
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 (http://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), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

I thank an anonymous referee, Ilona Babenko, Thomas Bates, Mara Faccio (the editor), Sean Flynn, Mike Hertzel, Laura Lindsey, Denis Sosyura, Luke Stein, and Richard Walton for their helpful comments and guidance. I also thank all of the participants in the ASU brown bag seminar series, as well as the discussants in the 2021 Eastern Finance Association, 2021 Southwest Finance Association, and 2020 Boca Corporate Finance and Governance Conference meetings. I am responsible for any remaining errors and omissions.

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