2023/04/25 by Anthony B. Rice · 41 citations
Business, Management and Accounting · #Auditing, Earnings Management, Governance #Behavioral economics #Business #Cash flow #Corporate Finance and Governance #Economics #Finance #Herding #Insider #Insider trading #Investment (military) #Investment decisions #Investment strategy #Market liquidity #Monetary economics #Optimism #Political Influence and Corporate Strategies #Political science #Politics #Profitability index #Stock (firearms)
paper · pdf · doi:10.1017/s0022109023000546
published in Journal of Financial and Quantitative Analysis 59(5), 2226-2255 (Cambridge University Press)
openalex publication_date 2023/04/25 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/25
Abstract I show that an alignment in partisan affiliation, between a firm’s management and the president, is associated with higher levels of investment. Using insider trading data, I find that managers become more optimistic about their companies’ prospects when their preferred party is in power. This optimism-driven increase in investment is amplified by herding and associated with both lower profitability and stock returns. Overall, managers’ political beliefs produce heterogeneous expectations about future cash flows and distort investment decisions.