Working Paper: CEPR ID: DP17402
Authors: Vyacheslav Fos; Elisabeth Kempf; Margarita Tsoutsoura
Abstract: Executive teams in U.S. firms are becoming increasingly partisan. We establish this new fact using political affiliations from voter registration records for top executives of S&P 1500 firms between 2008 and 2020. The new fact is explained by both an increasing share of Republican executives and increased assortative matching by executives on political affiliation. Executives who are misaligned with the political majority of their team are more likely to leave the firm, especially in recent years, and their company's stock price responds negatively to the announcement of their departure. Combined, our findings indicate that the increasing political polarization of corporate America may not be in the financial interest of shareholders.
Keywords: Political Polarization; Corporate Governance; Executive Teams
JEL Codes: D72; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increasing political polarization of corporate America (G38) | Decrease in financial interest of shareholders (G32) |
| Political alignment (D72) | Team composition (M54) |
| Increasing political partisanship within executive teams (D72) | Higher turnover rates for politically misaligned executives (J63) |
| Departures of politically misaligned executives (J63) | Significant shareholder losses (G33) |