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CEOs and Politics

Paper Session

Friday, Jan. 7, 2022 12:15 PM - 2:15 PM (EST)

Hosted By: Association of Financial Economists & American Finance Association
  • Chair: Kose John, New York University

Did Western CEO Incentives Contribute to China’s Technological Rise?

Bo Bian
,
University of British Columbia
Jean-Marie A. Meier
,
University of Texas-Dallas

Abstract

We study the role of Western CEO incentives in fostering the technological rise of China. Due to China's quid pro quo policy, foreign multinationals face a trade-off between the short-term benefits of accessing China's vast market and the long-term costs of transferring technology to China. Leveraging microdata on the global patent network, we construct novel measures to describe technological interactions between US firms and over 70 countries. We find that firms managed by CEOs with high-powered incentive contracts form more partnerships with China and transfer more technology to China. These firms subsequently lose R&D human capital to China and face more patenting competition from China, suggesting negative long-term consequences in innovation. The evidence is consistent with the myopia-inducing instead of the effort-inducing property of high-powered CEO incentives. The paper reveals an important real effect of CEO incentives and highlights a novel channel behind China's technological catch-up.

The Political Polarization of United States Firms

Vyacheslav Fos
,
Boston College
Elisabeth Kempf
,
University of Chicago
Margarita Tsoutsoura
,
Cornell University

Abstract

Executive teams in U.S. firms are becoming increasingly partisan, leading to a political polarization of corporate America. We establish this new fact using political affiliations from voter registration records for top executives of S&P 1500 firms between 2008 and 2018. The rise in partisanship is explained by both an increasing share of Republican executives and increased sorting by partisan executives into firms with like-minded individuals. Further, we find that within a given firm-year, executives whose political views do not match those of the team's majority have a higher probability of leaving the firm. The increase in partisanship is taking place despite executive teams becoming more diverse in terms of gender and race.

Strategic CEO Activism in Polarized Markets

Shubhashis Gangopadhyay
,
University of Gothenburg and India School of Public Policy
Swarnodeep Homroy
,
University of Groningen

Abstract

CEOs are increasingly speaking on social issues, but little is known about their motivations and economic consequences. Both within a theoretical model and empirically, we show that CEO social activism is more common in firms with a greater share of operations in US states with high political polarization among consumers, and Republican-donor CEOs are more likely to support liberal causes. CEO social activism increases firm value by 1.3 percent and profitability by 3 percent. We establish sales turnover as a channel through which firms profit from CEO social activism. Corporate decisions that appear stakeholder-driven can ultimately benefit shareholders.

CEO Political Ideology and Voluntary Forward-Looking Disclosure

Md Noman Hossain
,
Central Washington University
Ahmed Elnahas
,
University of Texas-Rio Grande Valley
Lei Gao
,
Iowa State University
Jeong-Bon Kim
,
City University of Hong Kong

Abstract

This study investigates the information disclosure preferences of Republican versus Democrat CEOs using management earnings forecasts. Republican CEOs are known to favor the avoidance of threats and ambiguity, and this seems to outweigh the tendency to seize on information, associated with their authoritarian personalities. We find that Republican CEOs tend to prefer a less asymmetric information environment; hence they make more frequent, timelier, and more accurate disclosures than Democrat CEOs. We address endogeneity concerns using propensity score matching and difference-in-differences estimation and show that our results are unlikely to be driven by potential endogeneity. Our results are robust to controlling for CEO characteristics, incentives, overconfidence, and managerial ability, and are stronger for firms with higher levels of institutional ownership and litigation risk.

Discussant(s)
Xiaoyun Yu
,
Indiana University
Elena Pikulina
,
University of British Columbia
Jongsub Lee
,
Seoul National University
Mahsa Kaviani
,
University of Delaware
JEL Classifications
  • G3 - Corporate Finance and Governance
  • K0 - General