Republican vs. Democrat CEOs: Who's Better for Shareholders?

BOCA RATON, Fla., July 3, 2018 /PRNewswire-USNewswire/ -- The two major political parties in the U.S., the Republican and Democratic parties, are built on distinct sets of moral foundations that result in profound differences in values, norms, attitudes and behaviors.

Based on Gallup Polls, it's clear conservatives tend to favor the core values of the Republican party, while followers of the Democratic party tend to self-identify as liberal. The key difference between conservativism and liberalism, the two ideological extremes, is related to the openness to change and risk-taking, and research in psychology and political science has shown that conservative individuals are sensitive to losses and emphasize financial security, prefer familiar versus unfamiliar situations, are less open to adopting unconventional views or experiences, are less likely to make major changes in their personal lives, prefer job security rather than task variety, as well as strongly dislike uncertainty and complication.

While political affiliation may sometimes be difficult to identify, recent research shows that executives' individual donations to political candidates or committees capture their personal ideology well, which has spurred a great deal of interest in behaviors of Republican vs. Democratic CEOs. 

The behavior of conservative/Republican vs. liberal/Democratic CEOs is important because the tone set at the top can help explain firms' performance, strategic decisions and organizational outcomes. As such, recent research finds that Republican CEOs are better corporate citizens than their Democratic counterparts because they exhibit higher financial conservatism, make less risky investment decisions and have better financial reporting quality.

These studies conclude that Republican CEOs are more risk-averse and less open to change, which prompts them to adopt financially conservative policies, and as a result, are less likely to be named in securities fraud litigation cases. 

If regulators, investors or auditors care about CEO corporate behavior, it may pay off for them to find out which political party they support as this may be telling about the tone at the top that executive would set and the level of aggressive policies they would adopt. 

Maya Thevenot is an associate professor and Stone Fellow in the School of Accounting at Florida Atlantic University's College of Business. The opinions expressed in this article are those of the author and do not reflect or represent the opinions of Florida Atlantic University.

SOURCE Florida Atlantic University College of Business

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