FIRM-LEVEL PRESIDENTIAL PREMIUM

Abstract

This thesis investigates the relationship between the presidential administrations in the United States (U.S.) and equity performance at the firm level, using a large sample of about 8,700 U.S. firms for periods covering years 1926 to 2020. It makes two important contributions to the existing literature. First, it is the first to compute at the firm level the presidential premium and its expected and unexpected components. Second, this research is also the only study to examine which firm characteristics relate to the cross-section of the presidential premiums. We confirm that firm size negatively affects the presidential premiums in that the smaller the firm size, the greater the performance differential of Democratic presidencies over their Republican counterparts. Surprisingly, many other fundamentals such as profitability, asset turnover, illiquidity, leverage, intangibles and financial constraint determine the presidential effects. Overall, the results suggest that Democratic presidents outperformed their Republican counterparts in U.S. firms’ returns.