2023/04/25 by Anthony B. Rice
Business, Management and Accounting · #Corporate Finance and Governance #Political Influence and Corporate Strategies #Auditing, Earnings Management, Governance
paper · pdf · doi:10.1017/s0022109023000546
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.