It perhaps stands to reason that in times of uncertainty, companies attempt to reduce that uncertainty in whatever way they can. Research from a few years ago found that one of the most common approaches was via lobbying.
As you might expect, the more concerned a company is that it might be on the receiving end of a politician’s whims, the more they invest to try and influence those outcomes. Of course, being in the good books of politicians can also have other benefits, as recent research from Michigan State University highlights.
The study examined the financial gains companies saw that had connections with Donald Trump both before and during his term in office.
Political capital
“S&P 500 firms connected to Trump reaped abnormal stock returns of up to 3.7% following the 2016 election, which translated into approximately $2.5 billion in wealth creation for shareholders,” the researchers say. “During Trump’s presidency, companies in his network also enjoyed higher sales and operating income by up to 9%.”
The researchers also find that those firms with links to the former president were spared from regulatory attention, with these firms 4% less likely to be investigated and 7% less likely to have to make payments to regulators.
What’s more, these firms were also ample beneficiaries of government contracts, with their chance of receiving such a contract rising by 50% over firms without ties to Trump.
“Unlike preceding presidents, most of Trump’s career history has been in the business world; thus, the idea that his role as president would benefit his personal and professional network has drawn constant criticism,” the researchers say.
“Our research contributes to the public debate by shedding light on the financial and economic benefits of connectedness to the current US president,” the authors conclude. “On the one hand, our results could be viewed by Trump’s critics as evidence of cronyism or corruption. On the other hand, Trump’s supporters could argue that he is merely resolving information asymmetries between policymakers and the private sector by virtue of his extensive industry background.”
