Firm executive political leanings, Washington, and stock market returns

Abstract

In this paper, we study the effects of political identity on firm market performance. Specifically, we investigate whether a shared political orientation between a firm's executives and Congress, or the President, affect the firm's stock performance. Using hand collected political contributions data from the Federal Election Commission (FEC) to identify an executive's political orientation, we find evidence that firms with executives' political orientations matching that of the President or the Senate are associated with higher excess and abnormal returns and outperform other firms. Our results are consistent with the hypothesis that the market perceives political alignment positively.