Abstract
We demonstrate that democratic backsliding – the gradual erosion of political institutions in advanced democracies as a result of rising populism – generates regulatory risks for firms. Populist regimes undermine apolitical regulatory norms and practices by selectively targeting their opponents. Using a sample of all publicly traded U.S. firms over the 2009-2019 period, we find that, after the shock election of Donald Trump to the American presidency, firms with more business ties in China – a clear subject of Trump’s populist rhetoric – faced greater regulatory scrutiny from the U.S. Securities and Exchange Commission. This effect was even more pronounced for firms operating in technologically intensive industries, which were also targeted by Trump, and for firms that were politically positioned closer to the Democratic Party.
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