Abstract
Using the 2016 US Presidential election result as a shock to the expectations about the future regulatory environment, I find that firms in the most regulated industries, on average, earned 3.7% higher abnormal stock returns ($27 billion in market capitalization in aggregate) during the first 10 trading days after the election. The gains are more for firms having ex-ante higher growth opportunities and less for firms with ex-ante less competition, in more regulated industries. These results indicate that more regulations disproportionately benefit low-growth firms and also help incumbent firms to accrue monopoly rents. Finally, I provide direct evidence of political favoritism through which regulations benefit the shareholders of incumbent firms.
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