76 Pages Posted: 17 Mar 2010 Last revised: 14 Apr 2015
Date Written: March 29, 2013
We demonstrate that personal political preferences of corporate managers influence corporate policies. Specifically, Republican managers who are likely to have conservative personal ideologies adopt and maintain more conservative corporate policies. Those firms have lower levels of corporate debt, lower capital and R&D expenditures, less risky investments, but higher profitability. Using the 9/11 terrorist attacks and September 2008 Lehman Brothers bankruptcy as natural experiments, we demonstrate that investment policies of Republican managers became more conservative following these exogenous uncertainty increasing events. Further, around CEO turnovers, including CEO death, firm leverage policy becomes more conservative when managerial conservatism increases.
Keywords: Political values, financial conservatism, corporate culture, capital structure, dividend policy, investments
JEL Classification: G31, G32, G35
Suggested Citation: Suggested Citation
Hutton, Irena and Jiang, Danling and Kumar, Alok, Corporate Policies of Republican Managers (March 29, 2013). AFA 2011 Denver Meetings Paper; Journal of Financial and Quantitative Analysis (JFQA), 2014, 49(5/6), 1279-1310. Available at SSRN: https://ssrn.com/abstract=1573167 or http://dx.doi.org/10.2139/ssrn.1573167