Following the Flag: CEO Partisanship, Geopolitical Tensions and Global Supply Chain Choices

Abstract

This study examines how CEO partisanship influences global supply chain decisions amid rising geopolitical tensions. Using firm-level trade data, CEO political affiliations, and measures of ideological distance between countries, we find that firms led by CEOs politically aligned with the U.S. administration reduce imports substantially more from countries that become ideologically distant from the U.S. Exploiting close foreign elections as exogenous shocks, we show aligned CEOs reduce imports by over 40% more than misaligned CEOs from such countries. Exploring potential mechanisms, our evidence is consistent with aligned CEOs having heightened geopolitical risk perceptions and having desires to support administration policies. These politically influenced import reductions significantly reduce firm value and impairs access to critical materials, revealing important costs of politically-influenced supply chain decisions.

Keywords: Partisanship, Global Supply Chain, Geopolitical Tension

JEL Classification: F14, F51, G30, M12, M14