Politics and share prices: it's all about who you know
New research shows political connections affect company share prices
Press Release
Berlin, May 28, 2008
A new study by the European School of Management and Technology (ESMT) reveals a direct impact on share price of companies’ political affiliations. The research finds that companies with board connections to a winning political party enjoy a significant bounce in share price following an election. Share prices also soar in the wake of an appointment to the board of a politically connected individual.
The research is based on comprehensive share price analysis of the S&P 500 immediately following the US Presidential Election in 2000. The US market was chosen on the basis of its strong financial and regulatory framework, and is the first study of its kind to establish a connection of this sort outside of developing nations more vulnerable to corruption. In view of the quality of the US system, the study concludes that a similar relationship of this sort is likely to exist across the world’s major markets.
The study finds that in the seven days following the US Presidential Election in 2000, companies with board connections to the winning Republican party exhibited a positive and significant cumulative abnormal return (CAR). This translates into nearly a 3% increase in share price – and is true whether each company is given an equal weighting, or weighted based on its market capitalisation. The research defines a company as Republican or Democrat if it has at least one board member with a former affiliation to a particular party, and no such member with ties to the other side.
About ESMT
ESMT European School of Management and Technology was founded in October 2002 on the initiative of 25 leading German companies and associations with the aim of establishing an international management school with a distinctly European focus. ESMT provides executive education and offers international Full-time and Executive MBA programs.
Contact
Christiane Hach
Tel.: +49 (0)30 21 231-1042
Fax: +49 (0)30 21 231-1069
hach@esmt.org
ESMT European School of Management and Technology
Schlossplatz 1
10178 Berlin
Germany