Political Partisanship and Firm Risk

Abstract

We examine how political partisanship influences firm risk during live Monetary Policy Report to Congress (MPRC) hearings. Our research reveals that partisanship in Congress alleviates the negative impact of policy risk on firm risk. We attribute this risk mitigation to political gridlock inhibiting future policy changes. Consistent with this conjecture, we find that firms facing higher policy risk exhibit a more significant reduction in firm risk during MPRC hearings when Congress is divided between parties compared to when a single party controls both chambers. Additionally, we observe a decrease in lobbying expenditures when partisanship is high, and Congress is split.

Keywords: partisanship, policy risk, textual analysis, topic analysis, monetary policy reports, polarization