Study: When Execs Meet with White House Officials, Company Stock Surges

Chris Gaetano
Published Date:
Jul 6, 2017
White House

A recent study has found that when corporate executives visit federal officials, their company's stock tends to go up afterwards, and that the size of this bump can vary depending on how connected executives are to one party or another, according to the Harvard Business Review. The researchers, Jeffrey R. Brown and Jiekun Huang, found that the cumulative abnormal return is about 0.865 percent from 10 days before to 40 days after the meeting. This could be because the researchers also found that, following meetings with federal government officials, firms get more government contracts and are more likely to receive regulatory relief. Firms could also be benefiting from less political uncertainty after the meetings, which allows them to invest with greater confidence during times of heightened uncertainty. 

The research also found that the benefits of political access can change depending on which party is in power. A firm that spent a lot of time developing access to a Democratic administration may lose out if, such as was the case in 2016, a Republican takes power. The researchers, in fact, found that firms with greater access to the Obama administration underperformed compared to the stocks of otherwise similar firms by 80 basis points in the three days immediately following the election. 

The researchers did not want to suggest that this is direct evidence of quid-pro-quo in government. While, yes, the evidence might indicate that political access enables undue influence over federal officials, the researchers said another interpretation is that political access allows those in government to make more informed decisions that affect the firms. They noted that the data does not allow them to distinguish between these two possible interpretations. 

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