White House Access Hikes Companies’ Share Prices

“Overall, our results provide evidence suggesting that political access is of significant value to corporations,” researchers find.
David KatzSeptember 7, 2017

Using data on White House visitors from 2009 through 2015, researchers have found that corporate executives’ meetings with key policymakers boosted the stock returns of those executives’ companies.

Corporate executives’ meetings with White House officials are followed by significant positive cumulative abnormal returns (CARs), according to the study. For instance, the CAR is about 0.865% during a 51-day window surrounding the meetings (i.e., 10 days before to 40 days after the meetings).

“We also find that the result is driven mainly by meetings with the President and his top aides. We find insignificant CARs for cancelled visits, suggesting that the actual incidence of the meetings matters for firm value,” the authors write in their working paper,  “All the President’s Friends: Political Access And Firm Value.”

White House

But the value of such access appears to have a limited shelf life when the presidency changes hands. The researchers found that “the stocks of firms with access to the Obama administration underperform[ed] the stocks of otherwise similar firms by about 80 basis points in the three days immediately following the [2016] election.”  

The researchers also contend that they’ve found evidence suggesting that companies get more government contracts and are more likely to receive regulatory relief after their representatives meet with White House officials.

“Overall, our results provide evidence suggesting that political access is of significant value to corporations,” say the paper’s two authors, Jeffrey R. Brown, a finance professor at the University of Illinois at Urbana-Champaign, and Jiekun Huang, an assistant finance professor at the school.

Basing their findings using a dataset of White House visitor logs, they identified top corporate executives of S&P 1500 firms that had face-to face meetings with high-level federal government officials. They did that by matching the names of visitors in the logs to the names of corporate executives of S&P 1500 firms during the period from January 2009 through December 2015.

The authors were able to identify 2,286 meetings between corporate executives and federal government officials at the White House. They found that the firms with political access accounted for 40% of the total market capitalization of firms in the sample.

“Consistent with the notion that campaign contributions ‘buy’ access, we find that firms that contributed more to Obama’s presidential election campaigns [were] more likely to have access to the White House,” the authors write. By employing additional data, however, they found that the shares of companies with access to the Obama administration dropped precipitously right after President Trump was elected.  

Further, they found that firms that spent “more on lobbying, firms that receive more government contracts, larger firms, and firms with a greater market share are more likely to have access to influential federal officials,” they add.

The researchers calculated cumulative abnormal stock returns around corporate executives’ visits to the White House to evaluate the stock return effects of the executives’ visits. “It should be noted that although the release of the visitor logs by the White House has a three-month lag, many visits, especially those involving meetings with the president and his top aides, receive media coverage right around the time of the visits. Therefore, the stock price reaction may occur relatively quickly,” they write.

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