Research
Executive Partisanship and Corporate Investment
Journal of Financial and Quantitative Analysis, Volume 59 , Issue 5 , August 2024 , pp. 2226 - 2255 | DOI: https://doi.org/10.1017/S0022109023000546
Coverage: The Economist
Abstract: I show that an alignment in partisan affiliation between a firm's management and the president in power is associated with higher levels of investment by the firm. 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 associated with lower profitability and lower stock returns. Overall, managers' political beliefs produce heterogeneous expectations about future cash flows and distort investment decisions.
When Values Align: Corporate Philanthropy and Employee Turnover
Abstract: We study how corporate philanthropy affects employee retention and productivity, using comprehensive resume data from a popular professional networking website.
Using large natural disasters as shocks to the demand for disaster relief to identify exogenous variation in corporate charitable giving, we show that corporate philanthropy significantly reduces employee turnover by 5.9% to 7.8%. The effect is distinct from other CSR activities, and more pronounced for employees with volunteering experience and for female and younger employees, even within the same firm and year. Our findings indicate that an alignment in values between workers and firms can increase employee commitment.
Partisanship and Portfolio Choice: Evidence from Mutual Funds
with Will Cassidy and Blair Vorsatz
Abstract: Political beliefs shape the portfolio choice of institutional investors. After Donald Trump’s surprise 2016 election, Republican fund managers actively increased their portfolio’s equity share by almost 2%, primarily by purchasing stocks sensitive to economic conditions. Partisan beliefs drive these changes – Republican stock analysts differentially increased their earnings forecasts concurrently. We demonstrate that Republican and Democratic-run funds now receive systematically different inflows due to a strong connection between manager partisanship and sustainability ratings. We build a Koijen-Yogo style model of partisan asset demand. Our framework imputes a large effect of partisanship on holdings, but a relatively small effect on prices themselves.
Partisan Values and Financial Misconduct
with James O'Donovan
Abstract: We study the relationship between partisan values and financial adviser misconduct. Using self-declared party affiliations from voter records as our proxy for individual values, we find that Republican advisers are 11% more likely to commit financial misconduct than other advisers at the same branch during the same year. We find that this relation is not driven by matching with customers, changes in regulatory oversight, peer effects, or other time-varying omitted variables. We also find that in-group biases related to political affiliation can increase financial misconduct within firms, decrease misconduct-related turnover, and result in the reemployment of advisers with prior misconduct. Our findings indicate that individual values are an important driver of misconduct and that partisan in-group favoritism can result in labor-market disparities among professionals in the same field.
Within-Firm Partisanship and Innovation
with Matthew Henriksson
Abstract: Matching inventors to their voter records, we analyze how individual partisanship within firms influences inventor productivity and turnover. Across 3,367 public and 91,960 private U.S. firms, we find no productivity benefits from partisan diversity. Inventors apply for and are granted more patents when they are more politically similar to their coworkers. Moreover, politically-diverse teams of inventors do not produce patents of superior quality. Regarding inventor turnover, inventors who are less politically aligned with their coworkers are more likely to leave their firm. Together, the evidence suggests that partisan diversity within firms may lead to increased turnover and lower productivity.
Presidential Particularism (and the Trump Anomaly): Evidence from Federal Contract Awards and Capital Markets
Forthcoming at the Review of Corporate Finance Studies (RCFS) | SSRN
with Ling Cen, Sudipto Dasgupta, and Fan Zhang
Abstract: Using a comprehensive database covering federal contracts, we document presidential particularism in the allocation of U.S. federal government contracts during election cycles. Firms located in ''Swing'' and ''Core'' states receive disproportionately higher monetary value in federal contracts at the expense of firms that operate in "Hostile'' states. Awards to Core states peak in re-election years for incumbent presidents, suggesting both electoral and partisan motives. In contrast, awards to firms located in Core states fall relative to those located in Hostile states in election years for presidents' second terms. Government agencies engage more aggressively in particularism when they work under members of a president's cabinet or their leaders have the same party affiliation as the president. Particularism disappears during the Trump presidency when Hostile-state firms were awarded more contracts than Core-state firms. Based on empirical patterns of analyst forecasts and stock returns, we find that market participants are slow to recognize the implications of particularism for corporate earnings and underreact to this phenomenon.