Downsides of Corporate Political Connections: Evidence from Mass Shootings
64 Pages Posted: 6 Sep 2019
Date Written: August 30, 2019
This paper studies the negative impacts of corporate political connections on firm outcomes. Employing 20 years of mass shootings, I find that when mass shootings take place, companies which primarily support gun-rights politicians experience negative stock price reactions and worse operating performance. Depending on the number of fatalities in a mass shooting, one-week Cumulative Abnormal Returns (CARs) are about 1% to 2.5% lower for these firms. Operating performance of these firms also shows a substantial decline after mass shootings. The decline lasts for at least one year. After mass shootings, firms significantly reduce corporate political donations to gun-rights politicians. Further tests suggest that damages to corporate reputations rather than loss of corporate political connections to gun-rights politicians explain negative stock price reactions and worse operating performance of these firms in response to mass shootings.
Keywords: corporate political connection, mass shooting, stock returns, operating performance, corporate reputation
JEL Classification: G30, G38, D72, P48
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