Perceptions of political Self‐Dealing? An empirical investigation of market returns surrounding the disclosure of politician stock purchases

Abstract

We investigate how congressional stock purchases may impact investor expectations of firm outcomes. Specifically, we argue that because there is information asymmetry regarding how public policy may impact a firm and investors perceive that members of the U.S. Congress possess insider governmental information and power over the regulatory landscape of a firm, a legislator's purchase of firm stock will generate abnormal returns. Furthermore, we argue that this response will be greater if the Congressperson has jurisdiction over the firm through committee assignments, and that the effect of jurisdiction will be strongest when the firm ties itself directly to the politician through political strategies (e.g., lobbying sponsored legislation, committee testimony, and political action committee contributions). We find support for many of our arguments in a broad sample of senator stock purchases between 2012 and 2020. Managerial summary: We examine stock purchases of the members of the U.S. Senate for years 2012-2020 and find that stock purchases by senate members generate abnormal returns. We also find that abnormal