Don't Worry About the Election

Beyer, Scott; Jensen, Gerald R.; Johnson, Robert R.

doi:10.3905/jpm.2004.101

Cited by 18 publications

(8 citation statements)

References 23 publications

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“…In addition, recent research in finance sheds light on the relationship between personal political preferences and financial decision-making by many market participants: individual investors (Bonaparte et al , 2017; Kaustia and Torstila, 2011), professional money managers (Hong and Kostovetsky, 2012), equity analysts (Jiang et al , 2016) and firm top managers (Hutton et al , 2014b). At the macro level, there also is a line of research about difference in stock market returns in terms of the political party of the president (Santa-Clara and Valkanov, 2003; Beyer et al , 2004).…”

Section: Hypotheses Developmentmentioning

confidence: 99%

The influence of CEO political ideology on labor relations and firm value

Kim

Krueger

et al. 2021

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PurposeThis article aims to examine the influence of chief executive officer (CEO) internal political beliefs on labor relations. Prior research has paid little attention to channels through which the internal personal value system of managers enhances or deteriorates firm value. The authors provide evidence consistent with CEOs adopting labor policies impacting incumbent management–labor relationships based upon their political ideologies.Design/methodology/approachThe research design tests the impact of CEO political ideology on labor relation using an individual CEO’s personal information and firm affiliation, employee lawsuit information, financial contributions to candidates and committees, and firm financial information. The authors compiled a sample of 4,354 unique CEOs from 2,558 US firms that are covered by ExecuComp and used 18,404 firm-year observations for the study’s analysis. A Heckman two-stage estimation process is used to address a potential sample selection bias and match the requirements of exclusion and relevance criteria.FindingsFindings indicate that firms led by Republican-leaning CEOs are more likely to be sued by their employees, especially for violating union rights. Moreover, the findings of the study uncovered that Republican-leaning CEOs have fewer cases dismissed or withdrawn compared to Democrat-leaning CEOs and are also less likely to settle court cases prior to trial. Results indicate that Republican-leaning CEOs are associated with more substantial decreases in firm value compared to Democrat-leaning CEOs when facing labor allegations. The authors further show that firm value is lower for all firms facing litigation, with the magnitude of the decrease being more pronounced for firms with Republican CEOs.Research limitations/implicationsFirm affiliations are identified using ExecuComp, employee lawsuit information from the National Labor Relations Board (NLRB), financial contributions to candidates and committees from the Federal Election Committee (FEC) website, and financial information from Compustat. To the extent that these websites are inaccurate, such as financial contributions being underreported, the findings reported here may understate the relationships reported in this article.Practical implicationsThe authors capture CEO political ideology using political contributions. There may be other means, such as physical space and personal effort, by which one could also estimate the party and intensity of CEO political ideology. This information is unavailable.Social implicationsWhile presidential politics has four-year cycles, managerial finance is a daily activity. While political affiliation is most clearly measurable through monetary contributions, one can see implications of manager political leaning through their relationship with labor throughout the election cycle.Originality/valueThe analyses of this study indicate that labor unions are more likely to sponsor lawsuits and stronger allegations in firms with Republican CEOs and show that withdrawal, settlement or dismissal rates are lower when firms are managed by Republican managers, resulting in higher subsequent legal costs and potentially damaged employee morale. Also, this paper investigates whether lawsuits have a greater negative consequence on firm value when the firm is run by a Republican CEO. The authors find that lawsuits significantly lower Tobin's Q for Republican-led firms compared to companies with Democratic and apolitical CEOs. The authors further show that firm value is lower for all firms facing litigation, with the magnitude of the decrease being more pronounced for firms with Republican CEOs.

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Section: Hypotheses Developmentmentioning

confidence: 99%

The influence of CEO political ideology on labor relations and firm value

Kim

Krueger

et al. 2021

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“…() also find that significantly higher inflation rates are associated with Democratic political control. The interaction of the president's party with monetary and fiscal policy is examined by Beyer, Jensen, and Johnson (), while Fama (), Geske and Roll (), and Kaul () provide further evidence on the effects of politically‐driven monetary policy on inflation.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Alesina and Rosenthal (1995) and Alesina et al (1997) also find that significantly higher inflation rates are associated with Democratic political control. The interaction of the president's party with monetary and fiscal policy is examined by Beyer, Jensen, and Johnson (2004), while Fama (1981), Geske and Roll (1983), and Kaul (1987) provide further evidence on the effects of politically-driven monetary policy on inflation. Blinder and Watson (2016) conduct the broadest analysis of how macroeconomic variables are associated with the political party of the US president and find that almost all major economic indicators (e.g., GDP growth, employment, inflation, and total factor productivity) have more favorable values under Democratic presidents than Republicans.…”

Section: Introductionmentioning

confidence: 99%

U.S. presidential cycles and the foreign exchange market

2019

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We examine the association between the foreign exchange rate of the US dollar and US presidential cycles. Results show that Republican presidencies tend to start with a strong dollar, which then depreciates over the course of the presidency. In contrast, Democratic presidencies tend to begin with a weak dollar that then appreciates. These patterns result in an apparent presidential effect in US foreign exchange rates, the direction of which depends on whether exchange rates are measured by levels or by returns.

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“…After controlling for spurious regression bias they find no significant difference in stock returns under the two parties' governments. Others that dispute, or qualify, the USA presidential puzzle include Stovall (1992), Beyer et al (2004), Li and Born (2006), Stangl and Jacobsen (2007), Chen et al (2008) and Sy and Zaman (2011). In a study that we draw methodology from for our study, Sy and Zaman (2011) provide a risk-based explanation for this presidential puzzle.…”

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confidence: 92%

Firm size and the political cycle premium

2015

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Purpose – The purpose of this paper is to use firm-level data to examine whether the political cycle differentially relates to small vs large firms in New Zealand; a country that operates a unicameral political system has a short three-year political term and a right-of-centre stock market premium exists. Design/methodology/approach – Using firm-level data from 1972 to 2010, the authors examine monthly returns during right-of-centre National governments and left-of-centre Labour governments. The authors apply Santa Clara and Valkanov (2003) regression analysis approach to examine the political cycle impact on firm returns. Findings – Like in the USA, New Zealand’s political cycle premium is driven by small firms; however, the results are opposite. In New Zealand, periods governed by the right of the political spectrum produce significantly higher stock returns than those from the left and this finding is primarily driven by small firms who perform particularly poorly under left-of-centre governments. Research limitations/implications – Small firms were relatively heavily affected by the move to an open, deregulated economy; they were also less able to cope with tight monetary conditions, and periods of sharply falling inflation. New Zealand’s three-year political term may encourage newly formed governments to implement relatively fast moving shifts in policy where a more reasoned and steady approach would be warranted. Originality/value – This is the first paper to use firm-level data outside of the USA to examine the political cycle impact.

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Don't Worry About the Election

Cited by 18 publications

References 23 publications

The influence of CEO political ideology on labor relations and firm value

The influence of CEO political ideology on labor relations and firm value

U.S. presidential cycles and the foreign exchange market

Firm size and the political cycle premium

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