Impact of Regulations on Firm Value: Evidence from the 2016 US Presidential Election

Journal of Financial and Quantitative Analysis

71 Pages Posted: 19 Mar 2018 Last revised: 27 Dec 2022

See all articles by Santanu Kundu

Santanu Kundu

University of Mannheim, Finance area

Date Written: January 30, 2021

Abstract

Using the 2016 US presidential election result as a shock to the expectations about the future regulatory environment, I find that most regulated firms earned approximately 4% higher cumulative abnormal stock returns than least regulated firms during the first 10 trading days after the election. Exploring economic mechanisms, I find evidence consistent with the explanation that more regulations disproportionately harm high-growth firms and allow incumbent firms to extract rents through lower competition and political favoritism. Stock returns are also followed by a shift in firm fundamentals over the three years after 2016, consistent with the economic mechanisms.

Keywords: Regulation, Event Studies, Valuation, Growth Opportunities, Competition, Political Economy

JEL Classification: D72, G14, K23, L51

Suggested Citation

Kundu, Santanu, Impact of Regulations on Firm Value: Evidence from the 2016 US Presidential Election (January 30, 2021). Journal of Financial and Quantitative Analysis, Available at SSRN: https://ssrn.com/abstract=3143454 or http://dx.doi.org/10.2139/ssrn.3143454

Santanu Kundu (Contact Author)

University of Mannheim, Finance area ( email )

Mannheim
Germany

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