Surprise election for Trump connections

https://doi.org/10.1016/j.jfineco.2020.12.004Get rights and content
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Abstract

We exploit Donald Trump’s nonpolitical background and surprise election victory to identify the value of sudden presidential ties among S&P 500 firms. In our setting firms did not choose to become politically connected, so we identify treatment effects comparatively free of selection bias prevalent in this literature. Firms with presidential ties enjoyed greater abnormal returns around the 2016 election. Since Trump’s inauguration, connected firms had better performance, received more government contracts, and were less subject to unfavorable regulatory actions. We rule out a number of confounding factors, including industry designation, sensitivity to Republican platforms, campaign finance, and lobbying expenditures.

Keywords

Political connections
Event study
Firm performance
Donald Trump

JEL classification

D73
G14
G38
H57
P16

Cited by (0)

We are grateful to Bill Schwert (the editor) and Eric Zitzewitz (the referee) for extremely helpful feedback and guidance during the review process. We thank Gabriele Ciminelli, Hamdi Driss, Viktar Fedaseyeu, Neal Galpin, Iftekhar Hasan, Martin Holzhacker, Corinne Low, Ron Masulis, Lyndon Moore, Arthur Morris, Buhui Qiu, Nemit Shroff, Kelly Shue, Keke Song, Helen Spiropoulos, Garry Twite, Robert Wood, Frank Yu, and seminar participants at the Australian National University, China Europe International Business School (CEIBS), Fudan Fanhai International School of Finance, Hong Kong University, Michigan State University, NYU Shanghai, University of Adelaide, University of Melbourne, UNSW Sydeny, Victoria University of Wellington, and the 2019 UTS Australian Summer Accounting Conference for their constructive feedback. We thank Nazanin Babolmorad, Yuqi Gao, Samuel Nelemans, Rachel Soderstrom, Bochen Wu, and Wenbin Zhang for outstanding research support. We acknowledge financial support through research grants from CEIBS, University of Melbourne, and Melbourne Business School. Part of this research was completed when Zhou was a PhD candidate at the University of Melbourne.