Does Confidence in the President Influence Asset Liquidity?

Abstract

In this paper, we explore how an important public sentiment index, the Presidential Economic Approval Rating (PEAR), impacts firms’ asset liquidity strategies. We find convincing evidence that PEAR is positively associated with asset liquidity. We further identify that consumer confidence and stock return volatility can be potential channels through which PEAR influences asset liquidity. Moreover, while financial flexibility and unexpected shocks (e.g., the COVID-19 pandemic and global financial crisis) strengthen the PEAR-asset liquidity correlation, dividend payout and stock repurchase, oil supply and demand shocks, and geopolitical risk attenuate their link. We also find that the enhanced liquidity resulting from heightened PEAR leads to increased external financing, capital expenditure, and investments. Finally, our findings remain consistent upon the conduction of a series of robustness checks. To summarize, our research offers valuable insights into the substantial role of the general public’s opinion on corporate decision-making.

Keywords: PEAR, presidential approval, asset liquidity, financial flexibility, oil supply shocks, oil demand shocks, consumer sentiment