Political Partisanship and Firm Value

Abstract

Shared partisanship between corporate top executives and the U.S. president generates firm value. Firms whose executives are ideologically aligned with the ruling party demonstrate superior accounting performance. The partisan divides in stock market reactions were notably wide and robust around the 2016 and 2020 presidential elections, and the guilty plea of Republican lobbyist Jack Abramoff. These findings remain consistent even when explicit political connections through contributions are excluded. The value derived from partisanship can be explained through two mechanisms: partisan policy and in-group favoritism. We also document the influence of partisan alignment on real firm outcomes.

Keywords: firm value, political partisanship, shared partisanship, top executive team

JEL Classification: P16, G32, G34, M12, M14